Commercial Paper Futures
Source: Encyclopedia of Banking & Finance (9h Edition) by Charles J Woelfel
(We recommend this as work of authority and you can order it here)

The commercial paper futures contract on the CHICAGO BOARD OF TRADE calls for delivery of prime commercial paper rated A-1 by Standard & Poor’s Corporation and P-1 by Moody’s Investors Service, Inc. and approved as deliverable by the Chicago Board of Trade, maEagle Tradersg not more than 90 days from the date of delivery.

The basic unit of trading for commercial paper futures is commercial paper with a stated face value of $1 million (or multiples thereof).

Prices are quoted as an annualized discount.  Minimum price fluctuations are 0.01%, also known as one basis point, which is $25 per contract (minimum price fluctuations are calculated on the basis of 0.01% of $1 million - $100 then is divided by four because prices are quoted on a 90-day basis, rather than 360-day).

Normal daily limits on price fluctuations are 0.25% (25 basis points of $625 per contract) above and below the previous day’s settlement price.  Price limits do not apply to trading in contracts for delivery during a specific month on or after the last business day of the preceding month.

In all other futures contracts traded on the exchange the long is the taker of delivery and the short is the deliverer of the commodity; this is reversed in commercial paper futures.  Long is defined as the commitment to deliver paper and short as the commitment to take delivery.  In other words, the short commits to deliver the loan; the long commits to pay in commercial paper.  This allows the long to make money when the price goes up and the short to make money when the price goes down, just as in other commodity markets.

BIBLIOGRAPHY

ANREDER, S.S. “Ballooning Debt:  Month by Month, Commercial Paper Soars to New Highs.”  Barron’s, May 28, 1979 .  
Business Week.  “Rush into U.S. Paper.”  January 26, 1981 .
MURRAY , R.F. “Lessons for Financial Analysis”.  In “Lessons of the Pen Central Debacle”, Journal of Finance, May, 1971.
PUGLISI, D.J. “Commercial Paper:  A Primer”.  Federal Home Loan Bank Board Journal, December, 1980.
SALSBURY, S. Inside the Penn Central Crisis, 1980.
WALSH, J.M. “Growing Use of Commercial Paper Market”.  Euromoney, May, 1981.  

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