With the geopolitical uncertainties and expected changes coming to interest rates in 2022, commodity index futures could be a worthwhile hedge against inflation and portfolio risks. CME Group provides investors, asset managers, and financial institutions direct exposure to a variety of benchmark commodity indexes namely Bloomberg Commodity Index (BCOM), Bloomberg Roll Select Commodity Index (BCOMRS), S&P GSCI, and S&P GSCI Excess Return Index.
Participants have choices when it comes to how to access the commodity index markets, but there are a number of capital and cost efficiencies that show CME Group to be the most efficient place to express commodity index exposure via futures.
Capital-efficient margin offsets
There is a significant and reliable correlation between the index and the performance of the underlying futures, margin offsets provide capital relief for participants who are active in both the commodity index futures at CME Group and the underlying futures. Using BCOM futures as an example:
- A participant can receive up to 75% margin offset* between Bloomberg Commodity Index Futures (Clearing Code: 70) versus the underlying futures components of the index listed at CME Group.
- Assuming a dealer is willing to accommodate ~$100M in total BCOM exposure for an end-client, there are possible savings of $14M for dealers and $8.6M for customers in capital via margin offsets if BCOM futures are used to hedge underlying futures exposure.
- For sell-side dealers who facilitate customers’ exposure and are looking to hedge their underlying futures exposure via the commodity index, futures can be significantly more capital efficient choice versus an OTC swap.
The table below indicates the margin estimate for two different customer types: dealers and clients. For both, the choice is between BCOM OTC swaps and BCOM futures for their index exposure. Non-CME margins are estimates based on Bloomberg data.
The above example assumes a dealer is short ~$100M in BCOM exposure and long the equivalent in the underlying futures of the index. Roughly $75M of that underlying futures exposure will be transacted at CME Group. A dealer can choose to use BCOM futures and will pay 66% less in margin. The dealer is completely offset from a position perspective.
With our wide variety of commodity index choices at CME Group, margin offsets are also available between different commodity index futures and swaps. For example, S&P GSCI Excess Return futures have a 60% margin offset* versus BCOM futures at a 1:10 ratio.
More information and examples on margin and margin offsets can be found here.
CME Group’s fees for each of our commodity index futures are competitive to adjacent markets, such as OTC swaps and ETFs. Below is a chart depicting the average cost of carry for a 1-year hold of each respective commodity index futures contract.
|1-Year Hold for Members
Bloomberg Commodity Index futures
|Bloomberg Roll Select Commodity Index futures
|S&P GSCI ER Index futures
|S&P GSCI Commodity Index futures
The assumption for the 1-year roll is that a participant will roll their position at each quarterly expiration (sell the nearby and buy the deferred).
CME fees are as of April 22, 2022 and subject to change. For more information, view the CME fee schedule.
Commodity Index Products Homepage
Learn more about CME Commodity Index products, including contract specs, different ways to trade, and more.
All examples in this report are hypothetical interpretations of situations and are used for explanation purposes only. The views in this report reflect solely those of the author and not necessarily those of CME Group or its affiliated institutions. This report and the information herein should not be considered investment advice or the results of actual market experience.