Exchange for Related Positions

This Revised Advisory Notice is being issued solely based on a change to the answer to FAQ 23.  No other information in this Advisory Notice has been changed, and the effective date remains August 4, 2014.

FAQ 23 has been modified to clarify that for EFRPs entered into CME ClearPort, the execution time should be entered in the local time of the party(ies) entering the EFRP.

                                                                                            Revised Effective Date

In order to ensure that market participants have sufficient time to make any necessary business, system and/or process and procedure changes with respect to the execution of Exchange for Related Position Transactions pursuant to Rule 538, and to avoid any potential market disruptions, CME, CBOT, NYMEX and COMEX are deferring the June 2, 2014, effective date originally communicated on April 14, 2014, in CME Group Market Regulation Advisory Notice RA1311-5.

The new effective date will be August 4, 2014.  No other changes have been made to Rule 538 or the guidance in the Advisory Notice originally issued on April 14, 2014.

Effective on August 4, 2014, this Advisory Notice shall supersede CME Group Market Regulation Advisory Notice RA1006-5 issued on June 11, 2010.   The Advisory Notice is being issued to advise market participants of amendments to CME Group Exchanges’ Rule 538 (“Exchange for Related Positions”) and associated interpretative guidance which govern the execution of Exchange for Physical (EFP), Exchange for Risk (EFR) and Exchange of Options for Options (EOO) transactions - collectively referred to as Exchange for Related Position (“EFRP”) transactions.

On March 31, 2014, the revisions to Rule 538 and this Advisory Notice were deemed approved by the Commodity Futures Trading Commission (“CFTC”) pursuant to the provisions of CFTC Regulation 40.5.  

All market participants involved in the execution or clearing of EFRP business should ensure that they are fully informed regarding all of the requirements of Rule 538 and the associated guidance in the FAQ. 

Amended Rule 538 is presented in its entirety beginning on page 3 of this document and the associated FAQ begins on page 6.

Market participants should take particular note of the following aspects of the amended rule and guidance

Prohibition on Transitory EFRPs in CME, NYMEX and COMEX FX, Energy and Metals Products

Upon the effective date of this Advisory, the execution of transitory EFRPs, which have previously been permitted in CME foreign currency products, NYMEX energy products and COMEX and NYMEX metals products will no longer be permitted.   

As defined in amended Rule 538, transitory EFRPs are EFRPs in which the execution of an EFRP is contingent upon the execution of another EFRP or related position transaction between the parties and where the transactions result in the offset of the related positions without the incurrence of market risk that is material in the context of the related position transactions.  Questions 13-16 in the FAQ provide additional guidance in this regard

The time period between the transactions is a factor considered in assessing whether the EFRP is a transitory EFRP; however, the legitimacy of the transactions will be evaluated based on whether the transactions have integrity as independent transactions exposed to market risk that is material in the context of the transactions. 

Recordkeeping and Submission Requirements

Market participants should be attentive to all recordkeeping, clearing submission, and reporting requirements with respect to EFRP transactions.  These requirements are addressed in detail in questions 18-25 in the FAQ.

Questions regarding this Advisory Notice may be directed to the following individuals in Market Regulation:

               For NYMEX and COMEX Products                    For CME and CBOT Products

               Lisa Halpern, Lead Analyst, 212.299.2902            Nicole Pecyna, Supervisor, 312.341.7713

               Ryne Toscano, Director, 212.299.2879                 Michael Joubert, Supervisor, 312.341.7714  

                                                                                             William Lange, Director, 312.341.7757

                                                                                             Chris Reinhardt, Sr. Director, 312.435.3665

For media inquiries concerning this Advisory Notice, please contact CME Group Corporate Communications at 312.930.3434 or news@cmegroup.com.