As outlined in ASX 24 Market Notice No. 0863.22.08 market participants were advised that ASX plans to make a change to the 3 Year Bond Futures contract to improve market quality and liquidity in response to the current market conditions.

The following changes, subject to regulatory clearance, will be implemented:

Further information on the change to the 3 Year Bond Future contract specification is outlined below

Rationale for the change

The re-introduction of the minimum price increment to 0.010% follows a review of market liquidity in current market conditions, as measured by top of book bid and offer volume, market depth and traded volume.  Since November 2021, there has been a noticeable decline in top of book and depth liquidity as a result of macro and global market influences.  Reduced on-screen liquidity may impact the ability to efficiently enter and exit futures contract exposure and may result in price slippage.

In 2009, ASX previously widened the minimum price increment in the 3 Year Bond Futures in response to the impact the Global Financial Crisis had on futures market liquidity.  At that time the wider minimum price increment did result in improved on-screen liquidity as measured by top of book and visible depth.

ASX will undertake ongoing monitoring of the market to ensure the right balance of liquidity and efficiency.

Bond Roll Tick Increments

At this stage ASX does not plan to make any changes to the bond roll tick increments.  The functioning and effectiveness of the bond roll will continue to be monitored.

The revised contract specifications for the 3 Year Treasury Bond Futures and One Session Options can be found here.

The following section outlines the impact of the change on the 3 Year Futures and Options contracts:

Inter-Commodity Spreads

When the 3 Year Bond Futures minimum price increment is set to 0.010% the minimum price increments for the inter-commodity spreads will be as follows:

·       3 and 10 Year Bond Future inter-commodity spread (YTXT) will trade at a minimum increment of 0.005%.

·       90 Day Bank Bill and 3 Year Bond Future inter-commodity spread (IRYT) will trade at a minimum increment of 0.010%.

The above inter-commodity spreads will also adopt the narrower tradeable tick increments during the Roll period.

Order Purging Behaviour

With the implementation of the increase to the 3 Year Bond Futures minimum price increment to 0.010% any off-tick orders, i.e, resting orders with a futures price ending in 0.005% will be purged from the system.

ASX TradeAccept

The minimum price increment permitted for EFP and Block Trades in the 3 Year Treasury Bond Futures contract will be the same as the increment in the ASX 24 market.

One Session Option Settlement

Where the underlying futures contract minimum price increment is set to 0.010%, the weighted average of trade prices shall be calculated to 3 decimal places and rounded 2 decimal places; if the third decimal place is 5 the weighted average shall be rounded to the next highest second decimal place.

Serial and Quarterly Option Settlement Price

The expiry settlement price for the serial and quarterly options will be the mid-point of the 3 Year Futures bid and offer taken at 12.30pm on the expiry day, rounded up to the nearest 0.010%.

Error Resolution Policy

There is no change to the NCR, QCR and ETR basis point ranges with the increase in the minimum price increment to 0.010%.

CDE and CDE+ Availability

To support customers testing of the minimum price changes, the minimum price increment for the 3 Year Bond Futures will be set to 0.010% in CDE and CDE+ from 5.10pm on 6 September 2022 (Trade Date 7 September 2022).  During the week of the roll, the minimum price increment will be set at 0.002% in both the outright and calendar spread.

What do I need to do by when?

ASX 24 Participants and vendors should consider and identify any changes required to support the change to the minimum price increment for the 3 Year Bond Futures contract.

Need more information?

Issued by

Kristye van de Geer
Senior Manager, Interest Rate Products

Contact information

Kristye van de Geer
+61 (02)  9227 0130 or 0437 767 008
kristye.vandegeer@asx.com.au

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