I know, this is beating an issue into the ground.
Here is something I’ve put together on the contract specs for NGDP futures. It’s clear I am not a fan of NGDP futures, but Scott Sumner complained I didn’t bother reading his papers on NGDP futures.
He’s right. I did not spend the money to go and read these papers. I relied on information from his blog to piece together his vision of NGDP futures. In particular, I relied on a post from May of 2009 to get his basic picture of NGDP futures.
Here are what I assume would be his contract specifications for NGDP futures, based on my reading of the May 2009 post.
This post is mostly a holder of information so we know the specs for these futures.
Settlement Value: Bureau of Economic Analysis NGDP Table 3 times 1/1,000,000,000,000, rounded to the nearest .01 (This contract size is far too low)
Price Quote: Dollars and cents to hundredths of a cent. Example Value: 15,585.6 (from BEA Table 3 Line 1) * 1,000,000,000 = 15,585,600,000,000/1,000,000,000,000 = $15.5856
Tick Size (Minimum Fluctuation): 1/10,000 (one ten thousandth) of a dollar.
Tick Value: $.0001
Contract Months: The first 12 contract months in the quarterly January, April, July, October cycle. Three years of quarterly NGDP futures contracts.
Last Trading Day: Release date of Preliminary last Quarter GDP Report. Trading in expiring contract closes at 7:29am Central Time on the last trading day.
Margin: 10% of full contract value (Instead of normal futures margin calculations)
Margin Interest Rate: To be set by U.S. Federal Reserve at a rate high enough to insure sufficient liquidity
Market Maker: U.S. Federal Reserve
Contract Price: Two possibilities
- Set by U.S. Federal Reserve on a 5% p.a NGDP per capita growth path. Contract cannot trade at any other price as U.S. federal reserve promises to buy unlimited quantities of contract at this price.
- (This was by Bill Woosley in the comments section at MR and not Scott S in his post) Set by U.S. Federal Reserve on a 5% p.a NGDP per capita growth path until 9 months before contract expiration. Contract cannot trade at any other price as U.S. federal reserve promises to buy unlimited quantities of contract at this price. When expiration is closer than 9 months, contract is allowed to float in price, and fed no longer counts this open interest to the net open interest for the related open market operations.
Open Market Operations: Federal Reserve performs open market operations based on net open interest across all active contracts long/short at a 5:1 ratio. Example: Net futures position held by public is short $500m notional value of NGDP futures, so U.S. Fed purchases $2.5bn of T-Bills in response.