1. What is a Derived Block?

A derived block trade in Equity Index futures is a block trade consummated by a party eligible to engage in block trades, in which the price and quantity of the trade depends on one or a series of hedging transactions in an eligible related market. The methodology for executing the hedging transaction and the derivation of the price of the futures trade shall be determined and agreed upon by the two counterparties prior to the execution of the hedging transaction.


2. Why are they being introduced?

Derived Block functionality (subject to regulatory review) will provide greater liquidity and execution flexibility to eligible listed futures contracts by allowing liquidity to be sourced from the related market.


3. Which products are eligible?

DCM: CME

E-mini S&P Consumer Discretionary Select Sector Index Futures

E-mini S&P Consumer Staples Select Sector Index Futures

E-mini S&P Communication Services Select Sector Index Futures

E-mini S&P Energy Select Sector Index Futures

E-mini S&P Financial Select Sector Index Futures

E-mini S&P Healthcare Select Sector Index Futures

E-mini S&P Industrial Select Sector Index Futures

E-mini S&P Materials Select Sector Index Futures

E-mini S&P Real Estate Select Sector Index Futures

E-mini S&P Technology Select Sector Index Futures

E-mini S&P Utilities Select Sector Index Futures

DCM: CBOT

Dow Jones US Real Estate Index Futures


4. What underlying instruments can be used as part of the hedge?

Permitted hedging vehicles may include but not limited to stock baskets and/or other cash market instruments, e.g., ETFs, ETNs, that can be construed as bona fide hedging instruments for the equity index futures in the Derived Block Trade.


5. How will a Derived Block be agreed to?

Prior to the execution of any hedging transactions, the block liquidity provider and client must consummate the block trade and determine/agree upon the following:

  • The markets in which the block liquidity provider's hedging transactions will take place;
  • The pre-determined basis to be used by the block liquidity provider in determining the price of the block trade after the hedging transactions have been concluded

6. How can the related market hedge be executed?

Pre-defined hedging types are:

  1. Volume Weighted Average Price (VWAP)
  2. Time Weighted Average Price (TWAP)
  3. Percentage of Volume (POV)
  4. Limit Price

For other hedging methodologies, select “Other” under the hedge description in CME Direct and specify in the free text field.


7. What does the order entry screen look like?

A Derived block tick box is available on the CME Direct block entry screen.

Once ticked, you will be required to enter details such as block hedge type, reference hedge product, basis, start time and end time.


8. Will a specific transaction identifier be associated with this order type?

Derived block trades will be disseminated with a marker clearly indicating them as such. For example, on the block trade page on the web, derived blocks will have a distinct identifier attached to the line item.

Derived Block Trades

Privately negotiated derived blocks provide access to Equity Index futures liquidity to execute large trades with a built-in delta hedge.


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Further information on each exchange's rules and product listings can be found by clicking on the links to CME, CBOT, NYMEX and COMEX.

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