Defining whether to Roll to the Next Future Contract

For an instrument which includes fixings and for which the asset's fixing basis is set to the nearby contract, for example, Brent Crude Oil, on each fixing date the rate is set according to the price in the market on that date for the nearby future contract.

In the instrument's Fixing Details window (which is accessed by clicking the Fixing Details button in the pricing page) you can see information on the instrument's fixing dates. For each fixing date it also indicates on which underlying futures contract it is based and, if the fixing date has already occurred, the actual rate that was fixed, i.e., the future contract price in the market on that date.

By default in SDX Commodities & Energy for any instrument with fixings, even if a fixing date falls on the future contract's expiry date, that future contract is still used.

However, in such a situation you may prefer to use the next future contract instead. Accordingly you can define your customization settings so that if a fixing date does fall on the underlying future contract's expiry date the system will automatically use the next future contract instead.

You do this via the Customize window > Default Settings tab using the On a future contract's expiry roll to the next one dropdown list.

The Customize window is accessed from the ribbon bar > Home tab > Settings button.

This setting will not only affect the future contract used, but will also affect the fixing rate set on the fixing date. That is, if a fixing date falls on a future contract's expiry date the fixing rate will now be set on that date not to the future contract price in the market for the nearest future contract but to the future contract price in the market for the next future contract.

This can be seen if you enter into an Asian on Brent Crude Oil which includes the fixing date of 14 January 2010, which is the expiry date of the February future contract. In See "Using the Default Fixing Setting " you see that on the fixing date of 14 January the system uses the default setting and so the underlying future contract is still set to February. Accordingly the rate set is the price of the February future contract on 14 January, i.e., 77.82.

Figure 1: Using the Default Fixing Setting

See "Rolling to the Next Future Contract on a Contract’s Expiry Date " shows what happens if you change the system's default setting so that if a fixing date falls on a future contract's expiry date the system will use the next future contract instead. Here for the fixing date of 14 January you see that the underlying future contract is now set to March. Accordingly the rate set is the price of the March future contract on 14 January, i.e., 78.57.

Figure 2: Rolling to the Next Future Contract on a Contract’s Expiry Date