Did you know that you can execute a block transaction using CME E-mini S&P 500 options where 100% of the trade can be privately negotiated, executed, and subsequently reported to CME Group?
Now, you can block trade delta-neutral, standard E-mini S&P 500 options by adding a covered future using the E-mini futures contract at CME Group, via CME Direct.
100% of the trade can be privately negotiated, executed, and subsequently reported to CME Group – thus mitigating breakup risk.
Block trades are privately negotiated futures or option trades, or combination transactions, pursuant to Rule 526, that are permitted to be executed between two eligible counterparties ‒ which are subsequently submitted to CME Clearing through CME Direct.
Let’s look at an example. During US trading hours, a hedge fund calls a volatility trading desk at a bank, requesting liquidity in the September E-mini S&P 500, 4500 calls ‒ delta neutral against the E-mini S&P 500 September futures.
The vol trader at the bank provides an offer to sell that client 300 options, hedged delta neutral with 48 E-mini S&P 500 futures. The parties agree to the transaction.
The bank’s CME Direct-enabled broker reports the trade through CME Direct on behalf of both parties within the five-minute reporting requirement, which began upon agreement to the trade.
You can also block trade a covered, E-mini S&P 500 option spread, provided that each leg meets the block minimum threshold. Block trades on the covered, E-mini S&P 500 options are centrally cleared at CME Group, thus mitigating counterparty credit exposure and associated risks.
Additionally, a listed, delta-neutral covered futures and options block trade can be more capital efficient as the futures and options could provide margin offsets and relief to charges commonly levied on OTC transactions.
You can use reduced block trade requirements and extended block trade reporting times during Asian and European trading hours to assist in managing their risk outside of US trading hours.
Market participants should consult the contract specifications for additional details including block requirements and reporting information.