To ensure a fair and orderly market, CME maintains two price banding mechanisms for the CME® Globex® electronic trading platform, futures price banding and enhanced options price banding.

Price banding on the CME Globex platform is designed to mitigate the impact of erroneous order entries. An overly aggressive erroneous order, such as limit bids at prices well above the market or limit offers at prices well below the market, can trigger a sequence of market-moving trades that require subsequent cancellations. To help ensure stable markets, price bands are maintained to prevent the entry of overly aggressive orders.

Futures Price Banding  
A Price Band Variation (PBV), a static value that varies by product, is symmetrically applied to both the upside (for bids) and downside (for offers) to determine the Price Band Variation Range (PBVR). With each price change the PBVR is recalculated and the new range is applied. All bids and offers outside the PBVR are rejected by the CME Globex platform.

The PBVR is determined by applying the PBV to a reference price. The reference price is dependent on the market state and trading activity:

• During the Pre-Open and the Pre-Open/Non-Cancel period, the contract's Settlement Price is the reference price.
  • Once the first Indicative Opening Price (IOP) is calculated, it becomes the reference price.
• During trading hours, the CME Last Price is the reference price.
  • If no IOP or CME Last Price is established, the Settlement Price remains the reference price until a CME Last Price is established.
• In the event of a market emergency, when a market is placed in a non-trading mode during trading hours, the IOP serves as the reference price during the non-regular Pre-Open and Pre-Open/Non Cancel Period. If no IOP is available, the CME Last Price is the reference price.

Enhanced Options Price Banding  
While this approach to price banding has proven to be effective for futures markets, options markets on the CME Globex platform require some modifications to price banding methodology.

Although a series of options on a particular futures contract may trade frequently, any single option with a specific strike price may not trade or even be quoted regularly. The price of the underlying futures contract may change substantially subsequent to the option's CME Last Price, causing the market value of a formerly out-of-money option to increase substantially while the PBVR is locked in place. For this reason the CME Last Price on a specific option is an unrepresentative reference price. In addition, options with different strikes require different price band widths. PBVRs for "out-of-money" options should be narrower than those for "in-the-money" options to reflect the differences in the extent to which bids and offers departing from their fair market value may be considered erroneous.

For these reasons, CME has instituted enhanced options price banding, a dynamic price banding system, for selected options and options spreads traded on the CME Globex platform. Enhanced options price banding is identical to futures price banding, with the following modifications:

• Based on market conditions, the reference price is set to the:
  • CME Last Price of the option or spread;
  • Theoretical Options Price (TOP), based on well established options pricing algorithms; or,
  • CME Last Price in combination with the TOP, if practical.
• The width of the price bands is determined by one of the following:
  • A fixed PBV for the entire option series, identical to the current price banding practice;
  • A dynamic PBV based on the delta of the option, as estimated by the TOP calculation; or,
  • A dynamic PBV based on a percentage of the TOP, where the percentage is based on the delta of the option.

For more information on price banding at CME, please see the CME Globex Price Banding Q&A. For complete banding information for each CME Globex product, see  CME Globex Price Banding.

Please note: In the event market conditions dictate a wider price band, for example in a temporarily volatile market where prices are fluctuating rapidly, CME may elect to temporarily relax or suspend the price banding restriction.

In addition to the PBVR, Daily Trading Limits may be in effect for certain products. Daily Trading Limits are always given priority over PBVR in rejecting orders with erroneous prices.

PBVR are monitored throughout the day by the CME Globex Control Center (GCC) and may be adjusted if necessary.