The market for futures contracts on Canadian bankers' acceptances

The BAX contract is a futures contract based on a 3-month Canadian bankers' acceptance. The contract is traded on an index basis. Thus, its price is calculated by subtracting the annualized implied yield on the bankers' acceptance from 100. The BAX market has grown considerably over the last 8 years. In 1995, more than 9,000 contracts were traded daily, and open interest in late May 1996 amounted to approximately $90 billion. These contracts are used for various purposes (hedging, speculation, and arbitrage) and encourage the smooth functioning of the money market. BAX contracts fulfill this role by complementing other instruments such as treasury bills and forward rate agreements. In addition, BAX prices appear to respond more quickly to new information than do prices of traditional instruments.