Trading Practices

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:

Eurodollars
Euroyen TIBOR
Yen- and Dollar-Denominated Nikkei 225 futures
E-micro S&P CNX Nifty (Nifty 50) futures.

How the Mutual Offset System Works
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.

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:

All positions are transferred at the original trade price;
The inter-exchange transfer is provided at no cost.

Cost Advantages
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.

Other Benefits of MOS
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::

Immediate access to the world's most actively traded short-term interest rate futures contracts;
The combined liquidity of both CME and SGX markets;
Complete fungibility of MOS contracts;
Trading opportunities through all international time zones;
An easy, flexible, cost-efficient and time-tested linkage process.

Settlement Prices
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.

For MOS-eligible interest rate products, settlements are based on published Inter-Bank Offer Rates (Tokyo for TIBOR and London for LIBOR, which the Eurodollar contract settles to).
For Nikkei 225 futures, the contracts settle to a special openinq quotation (SOQ) of the Nikkei 225 Stock Average at the Osaka Securites Exchange (OSE). This value is usually based on the opening of the second Friday of the contract month.
For E-micro Nifty 50 futures, The Final Settlement Price is based on the final settlement price of the S&P CNX Nifty Index futures at the National Stock Exchange of India (NSE).

All MOS-eligible contracts are cash-settled. MOS prohibits Exchange for Physical (EFP) trades, whether generated on CME or SGX.

Trade Execution Only
Traders cannot re-submit positions through MOS for a second inter-exchange transfer (except, of course, in the case of an error).

A Single Marketplace
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.

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