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EFP, EBF and EFR Trades

An Exchange for Physical (EFP) is a privately negotiated, non-competitive futures trade transacted apart from the public auction market of a futures exchange but submitted for clearing through a futures clearing house.

The term EFP is used with all futures contracts except interest rate transactions and agricultural commodity transactions.

  • In the case of interest rates, the term used is Exchange Basis Facility (EBF).
  • For agricultural commodities, the term used is Exchange for Risk (EFR).

You can execute an EFP, EBF or EFR with any CME contract.

How EFP, EBF and EFR Trades Work

EFP, EBF and EFR trades involve a futures contract and a spot commodity or cash position. The parties involved agree privately upon a price for a simultaneous exchange or transfer of "spot for futures" or "cash for futures" and then report the terms of this agreement to the clearing house.

The counterparties must follow strict exchange rules in conducting such trades, and in certain cases these trades must be approved in advance by the clearing house. EFPs, EBFs and EFRs are not official trades until the clearing house has matched and cleared them, and the first payment of settlement variation and performance bond has been confirmed.

Acceptable Commodities or Forms of Collateral for EFPs, EBFs and EFRs

  • FX EFPs can be conducted with:
    • Spot currency
    • Currency forward transactions
  • Eurodollar EBF trades can be transacted with:
    • U.S. Treasury instruments
    • Eurodollar Time Deposits
    • Forward Rate Agreements (FRAs)
    • Interest Rate Swaps
    • Collateralized Mortgage Obligations (CMOs)
    • Investment Grade Debt
    • Other instruments
  • Swap EBF trades can be transacted with:
    • U.S. Treasury instruments
    • Interest Rate Swaps
    • Collateralized Mortgage Obligations (CMOs)
    • Investment Grade Debt
    • Other instruments
  • Equity index EFPs can be transacted with:
    • Certain standardized stock baskets
    • Certain Exchange Traded Funds (ETFs)
  • Acceptable cash sides for EFRs with agricultural futures are limited to:
    • The specific underlying commodities
    • Random Length Lumber contracts have additional requirements
  • For Weather futures, acceptable cash instruments are selected Over-the-Counter (OTC) weather swaps

In all cases, the cash sides must be comparable with respect to quantity, value or risk exposure to the futures utilized.

Benefits of EFPs, EBFs and EFRs

  • Convenience of private negotiation
  • Can be used with numerous cash instruments and commodities
  • For Eurodollars and Swaps, can be ideal for two parties seeking a Eurodollar or Swap futures transaction against a specific cash interest rate instrument
  • Risk management provided by the Clearing House
  • Offers straightforward trading method for parties with complementary objectives
  • Designed to assist institutional trading needs
 
 
 
 
 
 
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