Remove existing FX forward exposures from the bilateral interbank market into clearing to optimize capital costs and to free up bilateral credit lines


Blocks or EFPs of FX futures


The interbank market is heavily active in FX forward transactions, often acting as a hedge to offset activity traded versus institutional clients. This activity in forwards attracts capital costs against the bank’s balance sheet and uses up the credit lines that allow bilateral activity.

The capital impacts of this activity have become more pronounced under SA-CCR (read more on SA-CCR here), leading to further scrutiny on how trading can be optimized as well as the potentially material benefits of selectively using clearing versus holding positions bilaterally.

Most bank dealers do, however, wish to maintain the way that they trade – i.e., wish to maintain the ability to negotiate and trade directly with chosen counterparts. As such, any effective optimization technique needs to allow this activity to continue while a) freeing up the credit line for other trading activity and b) helping to optimize the capital held against the FX positions of the desk.

Any optimization requirements to free up credit lines and/or reduce balance sheet usage can become even more pronounced at key periods such as month or quarter end, and the least disruptive solution may be a mechanism that allows a bank to seamlessly transition existing trades against specific counterparts via a highly automated process.

Central clearing can help achieve both goals. Centrally cleared positions do not use a bilateral credit line and can also serve to materially optimize the capital associated with the positions. The ability to trade on an OTC basis directly with chosen counterparts can also still be preserved, helping to achieve the dealer’s desired trading style as well as optimizing the resulting post trade impacts on credit lines and balance sheet.

There are two highly automated ways to achieve this:

  • Exchange for physical (EFP) transactions allow customers to take an existing OTC position, such as an FX forward, and transition it into centrally cleared FX futures. This closes out the bilateral FX forwards (and so removes the position from bilateral credit line usage, helping to optimize the associated capital costs).
  • Block trading allows a trader to deal directly with a chosen counterpart on an OTC basis, but the resulting trade is immediately booked and held as a centrally cleared FX futures contract. As such, block trading does not need an ISDA, does not use a bilateral credit line, and can help optimize the capital associated with the transaction.


Both EFPs and blocks are bilaterally, privately negotiated transactions that allow clients to utilize OTC relationships, lean on OTC liquidity, and ultimately end up with centrally cleared FX positions that can help to optimize capital usage and free up bilateral credit lines.

Interdealer brokers can be used, if needed, to facilitate blocks and EFPs on an anonymous basis, or counterparts can contact for help getting connected with one of the 20+ counterparts ready to support these trading mechanisms.

As a basic example of a “standard” EFP transaction:

  • Trade 1: Bank A executes a buy of OTC FX forward EUR/USD 125,000,000 notional with Bank B: 
    • Hours or days later, Bank A requests a price from Bank B for an EFP to close the OTC FX forward position and to re-establish position in FX futures.
    • The price for the EFP is privately negotiated and agreed to on a bilateral basis, and the deal is subsequently submitted to CME Group for clearing.


  • Trade 2: Bank A executes a sell/unwind of their OTC FX forward position.
  • Trade 3: EFRP submission to CME Group, resulting in Bank A holding 1,000 lots (EUR 125,000,000) of cleared EUR/USD FX futures.

EFPs do not have any minimum size threshold and require reporting to CME Group as soon as possible, but no later than the end of the business day on which the EFP was executed. View details on EFP rules, including everything a participant needs to understand with a useful FAQ and more details on the unique aspects of Rule 538.

In 2022, EFP activity at CME Group increased by 196% and saw activity across more than 25 currency pairs.

As a basic example of a block trade:

  • Trade 1: Bank A wishes to execute a buy of OTC FX forward EUR/USD 125,000,000 notional with Bank B:
    • As part of the bilateral negotiation, Bank A requests the trade to be consummated as a block of CME FX futures.
    • As soon as the trade is executed it is booked and submitted as a block of CME FX futures (and so is never booked / never exists as an OTC trade).


  • The trade is bilaterally negotiated between Bank A and Bank B, but never uses a bilateral credit line and does not require an ISDA.
  • No OTC trade exists or is booked, the trade is immediately booked and submitted as a block of CME FX futures – with CME as the counterpart to both the buyer and seller.

FX futures blocks have rules on minimum size thresholds and reporting times (details here). More information on blocks can be found in the overview here and in the full regulatory guidance here.

In 2022, block activity in CME group FX futures increased by 37% and saw activity across more than 25 currency pairs.


EFPs and blocks deliver:

  • Bilateral, privately negotiated trades with chosen liquidity providers
  • Use of OTC relationships and OTC liquidity
  • OTC-like trading with the benefits and efficiencies of a cleared wrapper
  • Ability to free up bilateral credit lines and optimize capital impacts
  • The ability to use IDBs for anonymity and to facilitate the trade flow

Find your solution

If you would like to discuss any of the topics detailed above, please contact or for more information.

Over 20 market making firms are ready to facilitate blocks and EFRPs – choose your preferred partner here.

Exchange traded derivatives and cleared over-the-counter (“OTC”) derivatives are not suitable for all investors and involve the risk of loss. Exchange traded and OTC derivatives are leveraged instruments and because only a percentage of a contract’s value is required to trade, it is possible to lose more than the amount of money initially deposited.  This communication does not (within the meaning of any applicable legislation) constitute a Prospectus or a public offering of securities; nor is it a recommendation to buy, sell or retain any specific investment or service.

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