How Futures Exchanges Settle Contracts on No-Trade Days

Summary

The document asks how exchanges determine daily settlement prices for illiquid futures contracts when no trades occur, since positions still need to be marked to market. It seeks information about practices actually used and how common they are, rather than a general list of possible approaches.

The answer describes a hierarchy that can draw on trades in the contract, activity in other expiries and spreads, quoted prices, related markets, and prior settlement prices. The hierarchy suggests that settlement can use progressively less direct market evidence when the contract itself is inactive. The answer points to a related discussion but does not explain specific exchange rules, rank the methods by popularity, or establish how consistently exchanges apply this approach. It therefore offers a general framework, not a contract-by-contract account or a definitive statement about whether discretion without written rules is common.

Key ideas

• Illiquid futures contracts may still need a daily settlement price when no trades occur.
• Settlement methods can use evidence from other expiries, spreads, quotes, related markets, and prior settlements.
• The described approach is a cascade from direct market activity toward less direct evidence.
• The document does not establish how widely particular methods are used or compare specific exchange rules.

Tags

# How is the futures price set on days without trades?


# How is the futures price set on days without trades?












In an illiquid (commodity) futures market, several days may pass between trades in a contract. If the traders' positions must be marked to market every day, a price must be quoted even on days without trades. Question: Is there a commonly accepted rule for how the price is set on days without trades? Or does the practice differ materially across contracts and/or exchanges?

(I am not asking for a list of possible methods but rather methods actually in use and their popularity. E.g. I am familiar with an exchange where the price is set by a person without following any written rule. I wonder how common this is, and if it is not, then what the common practice is.)

## Answer by Chris Taylor (score 3)

https://quant.stackexchange.com/a/60093

There is a cascade of methods to choose a settlement price in futures markets - starting with trades in the relevant market, and going through trades in other expiries (plus spreads), quotes, quotes in spread markets, trades in related markets, previous day’s settlement prices etc.

This answer to a related question may be helpful - https://quant.stackexchange.com/a/59812/924

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.