Pricing Requirements

Exchange for Related Positions (EFRP) may be transacted at such commercially reasonable prices as are mutually agreed upon by the parties to the transaction. However, the exchange component of the EFRP transaction must be priced in accordance with the applicable futures price increments or option premium increments.

EFRPs may not be priced to facilitate the transfer of funds between parties for any purpose other than as a consequence of legitimate commercial activity. Market participants may be required to demonstrate that EFRPs executed at prices away from the prevailing market prices were executed at such prices for legitimate purposes.

Related Position to an EFRP

It is important that each EFRP results in a bona fide transfer of ownership of the underlying asset between the parties (which would be relevant to Exchange of Futures for Physical), or a bona fide, legally binding contract between the parties consistent with relevant market conventions for the particular related position transaction (relevant to Exchange of Futures Risk or Exchange of Option for Option).

Traders must also consider the quantity and type of the related position when negotiating an EFRP.

The quantity of a related position component must be approximately equivalent to the quantity of the exchange component. This does not mean the quantities need to be identical – appropriate hedge ratios between the exchange and related position components of the EFRP may be used to establish equivalency.

The related position component of an EFRP must be one of the following:

  • The cash commodity underlying the exchange contract
  • A by-product, a related product or an OTC derivative instrument of such commodity that has a reasonable degree of price correlation to the commodity underlying the exchange contract

The related position component of an EFRP may not be a futures contract or an option on a futures contract.

Where the risk characteristics and/or maturities of the related position differ from the instrument underlying the exchange contract, the parties to the EFRP may be required to demonstrate the correlation between the products and the methodology used in equating the futures to the related position. In all cases, the related position transaction must be comparable with respect to quantity, value or risk exposure of the corresponding exchange contract.

Generally acceptable related position instruments for EFRPs in the various product groups can be found in the EFRP Market Regulation Advisory Notice (MRAN). 

This is part of a course on EFRPs. For official regulatory guidance on EFRPs, reference the applicable Market Regulation Advisory Notice.

Test your knowledge

ACCREDITED COURSE

In case you didn’t know, the CFA Institute allows its members to self-determine and report continuing education credits earned from external sources. CFA Institute members are encouraged to self-document such credits in their online CE tracker. CME Institute offers a variety of courses, webinars, and white papers to support your professional education.

What did you think of this course?

To help us improve our education materials, please provide your feedback.

Extend your learning

Put your knowledge into practice with the Trading Simulator

Get hands on experience with the latest Trading Challenge

CME Group is the world’s leading derivatives marketplace. The company is comprised of four Designated Contract Markets (DCMs). 
Further information on each exchange's rules and product listings can be found by clicking on the links to CME, CBOT, NYMEX and COMEX.

© 2022 CME Group Inc. All rights reserved.