The Mutual Offset System (MOS) is a partner program between CME and SGX that enables traders to open a futures position on one exchange and liquidate it on the other. It provides a means of managing overnight risk. (When MOS was created in 1984, SGX was called the Singapore International Monetary Exchange or SIMEX.)
MOS was the first international futures trading link of its kind. It now offers five contracts:
To do an inter-exchange transfer, the customer must first designate a trade as a MOS trade before it is executed. The customer then chooses whether CME or SGX will carry the position. Trades can be given up from one exchange and accepted on the other within 5 business days, including original trade date.
For example, a customer could initiate a MOS trade with a Eurodollar contract at CME in the morning. Then, send it over to SGX through MOS in the afternoon, Chicago time. As soon as SGX accepts the trade, the CME position is automatically offset. Once a trade clears the inter-exchange match, the position is liquidated on the originating firm's books. It becomes a new position on the accepting firm's books. The customer pays margin (performance bond) to the exchange that received the trade.
Additionally, with the Mutual Offset System:
MOS customers can benefit from spread margining. The program allows for lower performance bonds for offsetting positions in different products. For example, the risk of a short position in one product group can be somewhat offset by a long position in another product group, such as Eurodollars versus Euroyen. The potential cost advantages of this feature can be considerable.
The CME-SGX Mutual Offset System reduces the costs of trading on foreign markets. It also provides efficient risk management on a global basis. Additionally, MOS offers:
The interexchange transfer of trades takes place at the original trade price. Positions are marked against the daily settlement prices of the exchange where those positions are held.
All MOS-eligible contracts are cash-settled. MOS prohibits Exchange for Physical (EFP) trades, whether generated on CME or SGX.
Traders cannot re-submit positions through MOS for a second inter-exchange transfer (except, of course, in the case of an error).
MOS users need not be concerned about two different sets of rules for CME and SGX. Both exchanges operate under similar rules, philosophies, systems and trading facilities. As such, market participants may actually regard the two exchanges as providing a single marketplace for MOS contracts.