Effective immediately, CME, CBOT, NYMEX and COMEX have adopted revisions to Rule 770 (“Delivery Offset Procedures”). The revisions clarify the requirements for submission of offset requests and eliminate the former requirement that an account owner accepting the offset have an open position in the contract.
Revised Rule 770 permits a clearing member who carries an account with an open position in a physically delivered contract month that has expired to request to offset the position against an opposite account through a trade transfer in the event the position results from an error, omission or outtrade. The request must be made to the Clearing House, and in the event that the Clearing House does not receive acceptance of the trade transfer from an account with different beneficial ownership, the Rule requires delivery to take place as required under Exchange rules. The delivery offset process is intended as a safeguard against delivery defaults where positions in physically delivered contracts result from errors, outtrades or omissions identified after expiration of the contract.
The revisions to Rule 770 appear below, with additions underscored and deletions overstruck.
770. DELIVERY OFFSET PROCEDURES
member or clearing member who, as the result of an error in the execution of an order or an outtrade discovered on or after the last day of trading, has a position in a contract which has expired and who is obligated either to make or take physical delivery in that contract , may, with the consent of the account owners or controllers, request to offset such position against an opposite position of a member or clearing member whether or not such position exists as a result of an error or outtrade; provided, however, that the parties to an y such error or outtrade shall exercise the utmost diligence to resolve the error or outtrade. The Clearing House shall accept such request, up to the full quantity of the initial request, upon receivin g offset acceptance from an account(s) with different beneficial ownership. The Clearing House shall randomly assign available offsetting positions to each member or clearing member submitting a request, thereby extinguishing each party's obligation to make or take physical delivery; provided, however, that in the event the Clearing House is unable to assign offsetting positions due to an insufficient number of available offsetting positions, delivery shall take place as required under Exchange rules. All positions offset pursuant to this rule shall be liquidated at the final settlement price of the contract. A clearing member desiring to offset such positions must notify the Clearing House by reporting its final open interest and submitting a request in accordance with the schedule established by the Exchange.
The assignment of offsetting positions shall release clearing members and the Exchange from their respective obligations under the contracts.
Questions regarding this Special Executive Report should be directed to Anthony DiBenedetto, Associate Director, CME Clearing, at 212.299.2152, Melvin Garcia, Manager, Clearing Operations, at 212.299.2144 or Robert Sniegowski, Associate Director, Rules & Regulatory Outreach, at 312.341.5991.
For media inquiries concerning this Advisory Notice, please contact CME Group Corporate Communications at 312.930.3434 or firstname.lastname@example.org.
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