Now that we have provided you with the capital efficiencies present in Commodity Index futures at CME Group, below are a few ways that a participant can access CME’s commodity index markets.
- Using BTIC Functionality
- Globex and/or Clearport
- Engaging in an Exchange for Physical (EFP)
- Or an Exchange for Risk (EFR)
Basis Trade at Index Close (BTIC):
BTIC transactions enable market participants to execute a basis trade relative to the official close for the underlying index for more efficient cash management. (link to Commodity Index BTIC Page). A BTIC transaction is entered via a basis expressed in discrete index points, where the executed trade price is the total number of index points to be applied to the official close price of the underlying index or settlement value index as published by the index provider.
BTIC functionality is available for both Globex and block transitions. For participants who are looking to enter the market via significant size, a BTIC block transaction can be seamless and efficient way of entering the market.
One key benefit of BTIC is its handling of market disruption events. Market disruption events occur when the underlying futures component of the corresponding commodity index closes limit-up or limit-down. When this occurs, the official index close is unknown and will not be established until the price of the disrupted underlying futures contract is resolved.
Globex Outrights and Block Trades: Each of CME’s four commodity index futures listed for trading are eligible for both Globex and block transactions. Roughly 50% of commodity index futures activity is done on Globex meaning there is strong liquidity on-screen and demand for large transactions via Ex-Pit transactions. Some products, such as BCOM futures, are more active on screen with 78% of 2022 volume done on Globex. Additionally, S&P GSCI futures are quoted around the clock.
Engaging in an Exchange for Physicals (EFP): EFP transactions allow investors to convert between futures and either ETFs or baskets of the underlying index constituent stocks, without exposure to intraday market execution. In an EFP transaction, two parties exchange equivalent but offsetting positions in a commodity index (or equity index) futures contract and an underlying physical commodity.
A client who is long exposure to a specific commodity index, such as S&P GSCI, via ETFs may use the EFP mechanism transition to S&P GSCI futures.
Exchange for Risks (EFR): EFR transactions allow investors to convert between futures and a corresponding OTC swap transaction or other OTC derivative transaction.
For example, if an investor is long $250M in an OTC BCOM Swap, a participant can transition that exposure to a BCOM futures contract at $250M notional via the EFR transaction type. The table below provides further analysis on this example.
Similar to EFPs, both sides of the EFR track the same or similar benchmarks, an EFR is market neutral. As such, the pricing of an EFR is quoted in terms of the basis between the price of the futures contract and the level of the underlying index.
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.