1. What is the Chicago Board of Trade’s DJ-AIGCI Excess Return Futures contract?

The CBOT DJ-AIGCI^SM Excess Return futures contract (“DJ-AIG ER^SM”) is designed to provide a highly liquid, standardized alternative to custom over-the-counter transactions on the DJ-AIG Commodity Index^SM.  Designed to track the DJ-AIGCI^SM in a financial vehicle similar to those used in the OTC swap market, each contract will cash settle at maturity against the official close of the underlying DJ-AIGCI. This mechanism should allow the DJ-AIG ERfutures contract to benefit from the deep liquidity in the 19 futures markets which comprise the DJ-AIGCI.

2. What are some of the key features of the DJ-AIG ER?

The CBOT DJ-AIG ER is designed to track the DJ-AIGCI, which is calculated on an excess return basis.  The index provides broad-based exposure to commodities as an asset class, since no single commodity or commodity sector dominates the index. Rather than being driven by micro-economic events affecting one commodity market or sector, the diversified commodity exposure of the DJ-AIGCI potentially reduces volatility in comparison to non-diversified commodity baskets.  In addition, the cash settlement feature of the contract eliminates the delivery component at expiration. The DJ-AIG ER contract also incorporates an “embedded fee” that makes the unique mechanics of this contract possible. This fee, which works on a daily accrual basis, mirrors the mechanics of the fees generally charged in the OTC market.  

3. How does the embedded fee work?

Transactions that track the DJ-AIGCI incorporate an embedded fee in order to cover the costs involved in replicating the index. The calculation of the DJ-AIGCI assumes a periodic roll from the nearby expiring futures contracts to further expiring futures contracts. Rolling the nearby futures contracts is necessary if the market participant wants to maintain his/her position past the expiration of the current futures contract.  If one attempts to replicate the DJ-AIGCI using the underlying futures contracts, this would involve rolling positions several times a year given the quarterly expirations.  Since the new futures contract will also be listed out to five years, market participants will have the flexibility to put on a position in a far, deferred month and avoid having to manage the quarterly expiries.

On every business day, the holder of a long position in the DJ-AIG ER contract is charged one day’s worth of an annualized fee of 40 basis points, which is competitive to the fees typically charged in the OTC market.  This fee will be debited from every long position holder’s margin account, with every short position holder receiving 10 basis points and the remaining 30 basis points applied to licensing and exchange fees. There is no embedded fee charged to the short position holder.

4. How does this contract differ from the CBOT’s original DJ-AIGCI futures contract?

As opposed to the original contract, the DJ-AIG ER will settle to the value of the DJ-AIGCI, rather than to the sum of its individual components, a change made in response to demand from CBOT customers.  With the original contract, positions needed to be progressively rolled between the 5^th and 9^th business day of the expiration month so that the futures contract replicated the index through its components. This rolling feature added to the complexity of maintaining a long exposure to the DJ-AIGCI. The design of the new DJ-AIG ER future alleviates this problem.

No additional months in the original DJ-AIGCI futures will be listed past the December 2006 contract, which expires on December 15, 2006.    

5. How is the DJ-AIG ER futures contract settled?

The contract is cash-settled on the third Wednesday of the contract month.  The final settlement price is determined by a special settlement quotation of the DJ-AIGCI. 

6. Is off-exchange trading available for DJ-AIG ER? 

Yes. Exchange for Physical Transactions (EFP), Exchange for Swap Transactions (EFS), and Exchange for Risk Transactions (EFR) are all available for the DJ-AIG ER contracts.

7. On which platforms will the DJ-AIG ER be listed?

The DJ-AIG ER will be listed on e-cbot^® only.

8. What are the trading hours for the new DJ-AIG ER futures contract?

The contract will trade on e-cbot from 8:15 a.m. to 1:30 p.m. Chicago time.  There will be no overnight trading in DJ-AIG ER on e-cbot.

9. Will there be a market maker in the DJ-AIG ER contract?

Yes. The CBOT will institute an electronic market maker program to provide liquidity, with AIG International Inc. serving as one of the market makers.

10. When will DJ-AIG ER futures be launched?

DJ-AIG ER futures will be launched on October 2, 2006 beginning with the December 2006, March 2007, June 2007, September 2007, December 2007, December 2008, December 2009 and December 2010 expiries.