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Consultation on Methodology Changes to CF Cryptocurrency Settlement Prices Now Open

CF Benchmarks

• 6 min read
Consultation on Methodology Changes to CF Cryptocurrency Settlement Prices Now Open

The Administrator announces that  a consultation on proposed changes to the methodology for the below benchmarks has begun

  • CF Bitcoin Dollar US Settlement Price
  • CF Litecoin Dollar Settlement Price
  • CF Bitcoin Cash Dollar Settlement Price
  • CF Ripple XRP Dollar Settlement Price
  • CF Chainlink Dollar Settlement Price
  • CF EOS Dollar Settlement Price
  • CF Tezos Dollar Settlement Price
  • CF Stellar Lumens Dollar Settlement Price
  • CF Cosmos Dollar Settlement Price
  • CF Algorand Dollar Settlement Price
  • CF Basic Attention Token Dollar Settlement Price
  • CF DAI Dollar Settlement Price
  • CF OMG Network Dollar Settlement Price
  • CF Orchid Dollar Settlement Price
  • CF Bitcoin Euro Settlement Price
  • CF Ether Euro Settlement Price

The Administrator proposes changes relating to the below sections of the Methodology only

  • Section 5 - Contingency Calculation Rules
  • A new Section 6 – Restatement & Republishing
  • A new Section 7 – Market Failure Events

Consultation Process

The consultation for all aspects of this proposed change and its proposed date of implementation is now open and will close at 1630 LDN on June 4rd, 2021. All responses will be treated in confidence unless a respondent specifies that it wishes its identity to be known to the Administrator.

Submission of Responses

Please submit responses to consultations@cfbenchmarks.com. When submitting your responses please give as much detail as possible and please be specific with any suggestions or concerns.

Proposed Date of Implementation

The Administrator proposes to implement the proposed changes to the Settlement Prices from June 28th 2021 onwards

Rationale

The applications of the CF Settlement Prices in financial products have increased significantly over the past 6 months and are likely to continue to do so. The Administrator proposes these changes to ensure both the integrity of the benchmark and that any potential market disruption it could cause is sufficiently mitigated.

Likely Impacts

The proposed methodology changes mean that product providers that replicate or utilise the Settlement Prices may need to alter the provisions for extraordinary events in their product mechanics and market participants may need to factor these changes into their processes when transacting in instruments that are linked to the Settlement Prices

Further to general comments the Administrator will seek to understand from index users what the likely impacts could be in vis a vis:

Timeframe of Proposed Change
Whether the proposed change allows market participants to make the necessary arrangements to potentially alter product mechanics and provisions around extraordinary events

Financial Impact of Proposed Change
The financial value of contracts, instruments, funds that directly reference or are settled according to the benchmark that shall be impacted by the proposed change.

Market Impact of Proposed Change
The number of counterparties and types of counterparties that could be adversely impacted and the scale of the disruption they would face as a result of the proposed change.

The revised sections of the proposed methodology are shown below.

Contingency Calculation Rules

Delayed Data and Missing Data

Delayed data and missing data are treated according to the following rules:

  1. Any Relevant Transaction for a given Calculation Day that for any reason cannot be retrieved by the Calculation Agent from is not available from a Constituent Exchange’s API by the Retrieval Time is disregarded in the calculation of the CF Settlement Price for that Calculation Day.
  2. If no Relevant Transaction occurs on a Constituent Exchange on a given Calculation Day or one or more Relevant Transactions occur but for any reason cannot be retrieved by the Calculation Agent, the Constituent Exchange is disregarded in the calculation of the CF Settlement Price for that Calculation Day.
  3. If, for any of the K partitions of the TWAP Period, no Relevant Transaction occurs on any Constituent Exchange or one or more Relevant Transactions occur but for any reason cannot be retrieved by the Calculation Agent, the partition remains empty and will be disregarded in the calculation of the CF Settlement Price for that Calculation Day. The denominator in Eq. 2 will then be decremented by the number of empty partitions.
  4. If no Relevant Transaction occurs on any Constituent Exchange on a given Calculation Day or one or more Relevant Transactions occur but for any reason no Relevant Transaction can be retrieved from any Constituent Exchange by the Calculation Agent, a CF Settlement Price calculation failure occurs for that Calculation Day (see Section 5.5).
  5. If no Relevant Transactions occur on any Constituent Exchange on a given Calculation Day then a CF Cryptocurrency Settlement Price Market Failure Event will be deemed to have occurred (see Section 7 )

Erroneous Data

All Relevant Transactions retrieved by the Calculation Agent for a given Calculation Day are subject to an automated screening for erroneous data according to the following rules:

  1. If a Relevant Transaction shows a non-numeric or non-positive trade price or trade size, it is flagged as erroneous.
  2. If a Relevant Transaction is reported in a format that deviates from the expected format such that it cannot be parsed, it is flagged as erroneous.

Relevant Transactions flagged as erroneous for a given Calculation Day are disregarded in the calculation of the CF Settlement Price for that Calculation Day.

If all Relevant Transactions of all Constituent Exchanges are flagged as erroneous for a given Calculation Day, a CF Settlement Price calculation failure occurs for that Calculation Day (see Section 5.5).

Potentially Erroneous Data

All Relevant Transactions retrieved by the Calculation Agent for a given Calculation Day are subject to an automated screening for potentially erroneous data according to the following rules:

  1. For each Constituent Exchange individually, the volume-weighted median trade price across all Relevant Transactions of that Constituent Exchange is calculated.
  2. For each Constituent Exchange, the absolute percentage deviation of the volume-weighted median trade price, as calculated in the previous step, from the median of the volume-weighted median trade prices of all Constituent Exchanges is calculated.
  3. If for any Constituent Exchange the absolute percentage deviation, as calculated in the previous step, exceeds the potentially erroneous data parameter for the respective CF Settlement Price, all Relevant Transactions of that Constituent Exchange are flagged as potentially erroneous.

Relevant Transactions flagged as potentially erroneous for a given Calculation Day are disregarded in the calculation of the CF Settlement Price for that Calculation Day.

If all Relevant Transactions of all Constituent Exchanges are flagged as potentially erroneous for a given Calculation Day, a CF Settlement Price calculation failure occurs for that Calculation Day (see Section 5.5).

Delayed Calculation & Publication

Where for any reason the Administrator is not able to calculate and publish a CF Cryptocurrency Settlement Prices within the Dissemination Time on any given Calculation Day then the Administrator shall publish a notification on its website at blog.cfbenchmarks.com informing index users that calculation and publication has been delayed. The Administrator will seek to publish the CF Cryptocurrency Settlement Price for that Calculation Day as soon as it is able to. Should the Administrator not be able to calculate and publish a CF Cryptocurrency Settlement Price by 23:59:59 London time then the provisions of Rule 5.6 shall come into effect.

Expert Judgement

The Administrator does not utilise expert judgment in the day to day calculation of the Settlement Prices. In extraordinary circumstances Expert Judgement may be exercised by the Administrator in accordance with its codified policies and processes which are available upon request.

Calculation Failure

If a CF Settlement Price cannot be calculated for a given Calculation Day before 23:59:59 London time, for instance because:

  • no Relevant Transaction occurs on any Constituent Exchange on that Calculation Day, or
  • one or more Relevant Transactions occur but for any reason cannot be retrieved by the Calculation Agent, or
  • all Relevant Transactions retrieved by the Calculation Agent are flagged as erroneous or potentially erroneous (see Section 5.2); or
  • any other reason or circumstance that prevents the orderly calculation of a CF Settlement Price,

Then the CF Settlement Price for that Calculation Day is given by the CF Cryptocurrency Settlement Price on the previous Calculation Day and this Settlement Price shall be published with a marker of (*)

The occurrence of any CF Cryptocurrency Settlement Price calculation failure is reported to the CF Oversight Function and announced at blog,cfbenchmarks.com.

Restatement & Republishing

Th CF Cryptocurrency Settlement Prices are subject to restatement and republishing before 23:59:59 London time of any given Calculation Day due to errors made by the Calculation Agent or its systems. CF Cryptocurrency Settlement Prices will not be subject to republishing after this time.

  1. Restatement of a CF Cryptocurrency Settlement Price Value with a Replacement CF Cryptocurrency Settlement Price Value

The Administrator shall only Restate and Republish CF Cryptocurrency Settlement Price value if both the below conditions are met:

  1. Timeliness – where the Administrator can RESTATE and REPUBLISH a CF Cryptocurrency Settlement Price value before 23:59:59 of the given Calculation Day
  2. Materiality – where the RESTATED CF Cryptocurrency Settlement Price absolute variance greater than 0.20% for the respective CF Cryptocurrency Settlement Price for the given Calculation Day

Example:

  • If a CF Cryptocurrency Settlement Price  on a given Calculation Day is published as 1234.56
  • A CF Cryptocurrency Settlement Price will only be RESTATED if it is:
  • Greater than 1237.03

OR

  • Less than 1232.09

Where the above conditions are met the Administrator shall announce on its website that a restatement and republishing of the CF Cryptocurrency Settlement Price will take place for that Calculation Day.

The Administrator shall restate the impacted CF Cryptocurrency Settlement Price as soon as possible and shall do so by overwriting the previously published CF Cryptocurrency Settlement Price. This restated CF Cryptocurrency Settlement Price will carry no mark when published and will be final and not subject to any further change or republication.

Market Failure Event

Where a Market Failure Event has occurred, this shall be announced by the Administrator on its website. The CF Cryptocurrency Settlement Price on a day where a Market Failure Event has occurred shall be given by the CF Cryptocurrency Settlement Price published for the previous Calculation Day. Any CF Cryptocurrency Settlement Price published on a day when a Market Failure Event has occurred shall be marked by a maker (*).

Should the consultation result in the Administrator not implementing any of the proposed changes or the implementation date being changed then this and any further shall be announced by the Administrator. Any queries regarding the consultation process should be addressed to info@cfbenchmarks.com.

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