In May 2022, CME Group introduced Equity Index derived futures block trades. Derived futures blocks are privately negotiated large transactions in which the final price and the quantity are based on hedging transactions executed in an approved related market using hedging instruments such as stock baskets, ETFs and/or ETNs. Hedging instruments must evidence a reasonable degree of price correlation to the Equity Index futures product underlying the derived block trade.

From an execution perspective, derived futures blocks allow dealers to source liquidity from deepest parts of the entire equity ecosystem. Both counterparties must establish and agree upon the methodology for executing hedging transactions, as well as the resulting futures trade pricing, prior to initiating the transaction.  

The mechanics of a derived futures block trade are outlined below. Pre-trade, the dealer and the client must agree on:

• The target quantity or notional value must meet or exceed the required minimum block quantity
• The predefined hedging methodology (VWAP, TWAP, percentage of volume, or limit price) 
• Hedging vehicle (stock baskets, ETFs, ETNs, etc)
• Agreed basis: Pre-negotiated difference in index points between the reference hedge product and the futures block price, after the hedging transactions have been concluded

The primary benefits of derived futures blocks compared to its traditional counterparts such as outright blocks are both operational and financial including but not limited to:

• The ability to source liquidity from related markets
• The ability to transact significant amount of capital intraday without impacting onscreen prices
• Potentially more cost-effective pricing than would be otherwise possible via outright blocks

Since the introduction, the exchange has seen significant adoption of derived futures block trades for sector futures by institutional investors, resulting in increasing average volume and average notional traded (see Exhibit 2). 

A few observations can be made with respect to the distribution of trade counts and sizes. An average trade size measures roughly $55 million in notional with the largest trade size approximately at $1.17 billion. While larger size trades (>$100 million notional) represent 14% of total transaction count, they account for nearly 61% of the total notional, demonstrating that institutional investors utilize derived futures blocks of varying trade sizes to meet their needs.

The increase in adoption of the functionality comes as no surprise when taking into consideration the market environment in recent years. Led by technology and artificial intelligence stocks, against heightened geopolitical uncertainty, the U.S. equity market continues to have significant return dispersion across all eleven S&P Select Sectors. In such environments, investors need beyond broad market benchmarks to take advantage of return opportunities offered by high sector dispersion and to manage risk appropriately. 

Therefore, many institutional investors executing sector specific strategies or tactical adjustments increasingly utilize the derived futures block functionality, as a way to tap into deep liquidity of the underlying stock baskets and the ETFs, and thereby resulting in limited market impact and tighter pricing. The exhibit below highlights the ten most-traded Sector futures contracts via derived futures blocks since inception.

Following the successful rollout of derived futures block functionality for the Sector futures, CME Group introduced the feature to additional eleven Equity Index futures in December 2024.  

Taken all together, CME Group currently has derived futures block functionality enabled for 38 Equity Index futures contracts, allowing investors to seamlessly take large positions in total U.S. equity markets, different market cap ranges from large, mid, small to equal weight, sectors as well as investment styles (e.g., value, growth, momentum or ESG).

In June 2026, CME Group further extended the derived blocks to certain Equity Index options complexes such as E-mini S&P 500 options and S&P 500 Month-End options. Much like their futures counterparts, a derived options block trade provides greater liquidity and execution flexibility by allowing the delta to be sourced directly from adjacent markets (such as underlying futures contracts, stock baskets, ETFs and ETNs). Two key features of derived option blocks differ from those of standard option blocks – higher minimum block quantity (250 versus 100) and smaller tick size (0.01 versus 0.05).  

The benefits of derived options block include elimination of unhedged delta risk, thereby allowing liquidity providers to quote tighter pricing. The smaller tick size provides greater granularity and precision. These benefits should be valued by the marketplace and lead to greater adoption in this evolved derived block functionality.

Since the initial introduction for Select Sector futures, derived futures block mechanism has seen significant adoption by institutional investors who need to transact large volumes while keeping price impact minimal and costs tighter. With the expanded availability to 38 Equity Index futures and the introduction of derived option blocks, the functionality is likely to see further adoption as more clients become familiar with the benefits provided and have a greater suite of products to transact across.