Canadian Monetary Policy Market

The Canadian Monetary Policy Market is a real-money futures market that attempts to predict the monetary policy decisions of the Bank of Canada. Contract payoffs are determined by major monetary policy decisions, in particular with respect to raising and lowering the overnight rate, through which the Bank of Canada influences short-term interest rates.

The overnight rate is the interest rate at which major financial institutions borrow and lend one-day (or "overnight") funds among themselves; the Bank sets a target level for that rate. This target for the overnight rate is often referred to as the Bank's key interest rate or key policy rate. Changes in the target for the overnight rate influence other interest rates, such as those for consumer loans and mortgages. They can also affect the exchange rate of the Canadian dollar. In November 2000, the Bank introduced a system of eight fixed dates each year on which it announces whether or not it will change the key policy rate (see table below).

There are three contracts offered in each Canadian Monetary Policy Market. This is a "winner-takes-all" type of market in which only one contract pays $1, and all other contracts pay $0. Contract "HGH" pays $1 if the Bank of Canada increases the overnight rate, contract "LOW" pays $1 if the Bank of Canada decreases the overnight rate, and contract "UNC" pays $1 if the Bank of Canada leaves the overnight rate unchanged.

There are up to eight Canadian Monetary Policy Markets each year. The market symbols are the letters "CMP" for Canadian Monetary Policy, followed by two digits for the year, followed by a letter (A-H) for the sequence of decision dates in a given year. For example, CMP13B is the market for the second announcement date in 2013, which is 6 March 2013.

Bank of Canada Target
for the Overnight Rate
DateTarget
(%)
Change
(%)
CMP
Market
18 January 20111.00 —  
1 March 20111.00 —  
12 April 20111.00 —  
31 May 20111.00 —  
19 July 20111.00 —  
7 September 20111.00 —  
25 October 20111.00 —  
6 December 20111.00 —  
17 January 20121.00 —  
8 March 20121.00 —  
17 April 20121.00 —  
5 June 20121.00 —  
17 July 20121.00 —  
5 September 20121.00 —  
23 October 20121.00 —  
4 December 20121.00 —  
23 January 20131.00 —  
6 March 20131.00 — CMP13B
17 April 20131.00 — CMP13C
29 May 20131.00 — CMP13D
17 July 2013 —  — CMP13E
4 September 2013 —  — CMP13F
23 October 2013 —  — CMP13G
4 December 2013 —  — CMP13H