• Block Trades

      • To
      • Members, Member Firms and Market Users
      • From
      • Market Regulation Department
      • #
      • RA1305-4
      • Notice Date
      • 18 March 2013
      • Effective Date
      • 19 March 2013

    • Exchange
      NYMEX & COMEX
      Subject
      Block Trades
      Rule References
      Rule 526
      Advisory Date
      March 18, 2013
      Advisory Number
      NYMEX & COMEX RA1305-4

      This Advisory Notice supersedes NYMEX & COMEX Market Regulation Advisory Notice RA1304-4 from March 5, 2013. It is being issued based on reductions to existing block trade minimum thresholds in eight NYMEX power options products and the establishment of block trade minimum thresholds in eight NYMEX power futures products that will be effective on Tuesday, April 2, pending all relevant regulatory review periods. 
       
      Power Options Minimum Block Trade Threshold Decreases
       
      Effective April 2, 2013, NYMEX will implement decreases in the block trade minimum thresholds in the following eight power options products:
       
      ·         PJM West Hub RT 50 MW Off-Peak options (N9P) – from 100 to 2 contracts
      ·         NYISO Zone A 5 MW Peak Calendar-Month Day-Ahead LBMP options (9T) – from 100 to 5 contracts
      ·         NYISO Zone G 5 MW Peak Calendar-Month Day-Ahead LBMP options (9U) – from 100 to 5 contracts
      ·         NYISO Zone J 5 MW Peak Calendar-Month Day-Ahead LBMP options (9V) – from 100 to 5 contracts
      ·         CAISO SP15 EZ Gen Hub 5 MW Peak Calendar-Month Day-Ahead LMP options (CSZ) – from 100 to 5 contracts
      ·         PJM JCPL Zone Peak Calendar-Month Day-Ahead LMP options (JCL) – from 100 to 5 contracts
      ·         PJM PEPCO Zone Peak Calendar-Month Day-Ahead LMP options (PEP) – from 100 to 5 contracts
      ·         PJM PSEG Zone Peak Calendar-Month Day-Ahead LMP options (PSG) – from 100 to 5 contracts
       
      Power Futures Minimum Block Trade Thresholds
       
      Effective April 2, 2013, NYMEX will establish block trade minimum thresholds in the following eight power futures products:
       
      ·         CAISO NP15 EZ Gen Hub 5 MW Peak Calendar-Day Real-Time LMP futures (2F) – 5 contracts
      ·         CAISO NP15 EZ Gen Hub 5 MW Peak Calendar-Day Day-Ahead LMP futures (3Z) – 5 contracts
      ·         CAISO NP15 EZ Gen Hub 5 MW Off-Peak Calendar-Day Real-Time LMP futures (2J) – 16 contracts
      ·         CAISO NP15 EZ Gen Hub 5 MW Off-Peak Calendar-Day Day-Ahead LMP futures (2Z) – 16 contracts
      ·         CAISO NP15 EZ Gen Hub 5 MW Peak Calendar-Month Real-Time LMP futures (1Y) – 100 contracts
      ·         CAISO NP15 EZ Gen Hub 5 MW Off-Peak Calendar-Month Real-Time LMP futures (2D) – 100 contracts
      ·         CAISO NP15 EZ Gen Hub 5 MW Off-Peak Calendar-Month Day-Ahead LMP futures (3X) – 100 contracts
      ·         CAISO NP15 EZ Gen Hub 5 MW Peak Calendar-Month Day-Ahead LMP futures (4X) – 100 contracts
       
      Also, as previously indicated in RA1304-4, NYMEX will also implement the following pending all relevant regulatory review periods:
       
      ·         Effective March 19, 2013, a decrease in the minimum block threshold in PJM 50 MW Calendar-Month LMP options to 2 contracts (from 5 contracts);
      ·         Effective March 25, 2013, the establishment of a minimum block threshold in Singapore Fuel Oil 380 cst (Platts) vs. European 3.5% Fuel Oil Barges FOB Rdam (Platts) futures of 5 contracts; and
      ·         Effective March 25, 2013, the establishment of a minimum block threshold in Singapore Fuel Oil 380 cst (Platts) vs. European 3.5% Fuel Oil Barges FOB Rdam (Platts) BALMO futures of 5 contracts
       
      A complete list of NYMEX and COMEX products in which block trading is or will be permitted, and the relevant quantity thresholds, is available on the CME Group website via the following link:
       
       
      The text of Rule 526 appears in Section 13 of this Advisory Notice.
       
      1.         Definition of Block Trades
       
      Block trades are privately negotiated futures, options or combination transactions that meet certain quantity thresholds which are permitted to be executed apart from the public auction market. 
       
      It shall not be permissible to facilitate the execution of block trades in Exchange-traded products on a  system or facility accessible to multiple parties that allows for the electronic matching of or the electronic acceptance of bids and offers; block trades transacted in such manner do not satisfy the privately negotiated standard.   Parties may use communication technologies to bilaterally request block quotes from one or more participants and to conduct privately negotiated block trades.  Parties may also utilize technologies supported by third parties which allow for the electronic posting of indicative block markets displayed to multiple market participants.  However, block trades executed between parties on the basis of such electronically displayed indicative markets may be transacted only through direct bilateral communications involving the broker, where applicable, and the parties to the trade. 
       
      All block trades are subject to the conditions set forth in NYMEX and COMEX Rule 526 and in this Advisory Notice.
       
      2.         Participation in Block Trades
       
      Each party to a block trade must be an Eligible Contract Participant as that term is defined in Section 1a(18) of the Commodity Exchange Act. Eligible Contract Participants generally include exchange members and member firms, broker/dealers, government entities, pension funds, commodity pools, corporations, investment companies, insurance companies, depository institutions and high net-worth individuals. Commodity trading advisors and investment advisers who are registered or exempt from registration, and foreign persons performing a similar role and subject as such to foreign regulation, may participate in block transactions provided they have total assets under management exceeding $25 million and the block trade is suitable for their customers.
       
      A customer order may be executed by means of a block trade only if the customer has specified that the order be executed as a block trade.
       
      Orders may not be bunched to meet the minimum block quantity thresholds.
       
      3.         Time and Prices of Block Trades
       
      Block trades may be executed at any time, including times during which the public auction market is closed. 
       
      Block trades must be transacted at prices that are “fair and reasonable” in light of (i) the size of the transaction, (ii) the prices and sizes of other transactions in the same contract at the relevant time, (iii) the prices and sizes of transactions in other relevant markets, including, without limitation, the underlying cash market or related futures markets, at the relevant time, and (iv) the circumstances of the markets or the parties to the block trade.
       
      The trade price must be consistent with the minimum tick increment for the market in question. Additionally, each outright transaction and each leg of any block eligible spread or combination trade must be executed at a single price. 
       
      Block trade prices are reported independently of transaction prices in the regular market and are not included as part of the daily trading range. Block trade prices do not elect conditional orders (e.g. stop orders) or otherwise affect orders in the regular market. 
       
      4.         Block Trade Minimum Quantities for Outrights, Spreads and Combinations
       
      The block trade minimum quantity requirements for outright futures and options are set forth in the list of block trade eligible products which is available on the CME Group website via the following link:
       
       
      a)     Intra-Commodity Futures Spreads and Futures Combinations and Intra-Commodity Options Spreads and Options Combinations
       
      These spreads and combination transactions may be executed as block trades provided that the sum of the quantities of the legs of the transaction meets the minimum block quantity threshold.
       
      b)    Inter-Commodity Futures Spreads and Futures Combinations and Inter-Commodity Options Spreads and Options Combinations
       
      These spreads and combination transactions may be executed as block trades provided that the sum of the quantities of the legs of the transaction meets the larger of the threshold requirements for the underlying products.
       
      c)     Options/Futures Spreads
       
      Options/futures spreads may be executed as block trades provided that the options component of the spread meets the minimum quantity threshold for the outright option or option combination and the quantity of futures executed is consistent with the delta of the options component of the spread.   
       
      5.         TAS & TAM Block Trades
       
      Certain block-eligible futures contract months may be executed as block trades and assigned the current day’s settlement price or any valid price increment ten ticks higher or lower than the settlement price (“TAS block trades”). Additionally, certain block-eligible futures contract months may also be executed as block trades and assigned the current day’s marker price or any valid price increment ten ticks higher or lower than the marker price (“TAM block trades”). 
       
      Additionally, intra-commodity calendar spreads in the nearby month/second month spread and the second month/third month spread may be executed as TAS or TAM block trades provided that the underlying product is eligible for TAS or TAM trading. 
       
      The pricing of the legs of a TAS or TAM calendar spread block trade will be calculated as follows:
       
      • The nearby leg of the spread will always be priced at the settlement or marker price, as applicable, for that contract month.
      • The far leg of the spread will be priced at the settlement or marker price, as applicable, for that contract minus the allowable TAS or TAM price increment traded(–10 through +10), except in circumstances where the traded TAS or TAM price is the actual settlement or marker price of the contract.
       
      TAS block trades, including eligible TAS calendar spread block trades, may not be executed on the last day of trading in an expiring contract.
       
      The products and contract months in which TAS and TAM block trades are permitted are set forth in the list of block trade eligible products which is available on the CME Group website via the following link:
       
       
      6.         Block Trade Price Reporting Requirements
       
      a) Time Requirements
       
      Block trades in the following list of products must be price reported to the exchange within five minutes of the transaction. 
       
      • Brent Crude Oil Penultimate Financial futures (BB)
      • Brent Crude Oil Last Day Financial futures (BZ)
      • Light Sweet Crude Oil futures (CL)
      • Gulf Coast Sour Crude Oil futures (MB)
      • New York Harbor ULSD Heating Oil futures (HO)
      • Henry Hub Natural Gas futures (NG)
      • RBOB Gasoline futures (RB)
      • NYMEX Cocoa, Coffee, Cotton and No. 11 Sugar futures (CJ, KT, TT and YO)
      • Gold futures (GC)
      • Silver futures (SI)
      • Copper futures (HG)
       
      Block trades in all other block-eligible NYMEX and COMEX products must be price reported to the exchange within 15 minutes of the transaction. If the block transaction involves a spread or combination that includes certain legs subject to a five minute reporting requirement and other legs subject to a 15 minute reporting requirement, the reporting requirement for the transaction will be 15 minutes.
       
      b) Reporting Obligation
       
      Price reporting obligations are the responsibility of the seller, unless otherwise agreed to by the principal counterparties to the block trade; however, in the case of a brokered transaction, the price reporting obligation is the responsibility of the broker handling the block trade, unless otherwise agreed to by the principal counterparties to the block trade. For purposes of the foregoing, the term “seller” refers to the principal counterparty acting as the seller of the block trade.
       
      The failure to submit timely, accurate and complete block trade reports may subject the party responsible for the reporting obligation to disciplinary action. Parties shall not be sanctioned for block reporting infractions deemed to arise from factors beyond the reporting party’s control (e.g. the block trade fails the CME ClearPort automated credit check.)
       
      c) Reporting Methods
       
      Block trades must be price reported to the exchange via one of the methods described below:
       
                  i) CME ClearPort
       
      Block trades may be electronically submitted directly to CME Clearing via CME ClearPort.
       
      Block trades may also be price reported to the CME ClearPort Facilitation Desk by calling 1.866.246.9639 or via email at FacDesk@cmegroup.com. In either case, all of the data and information elements required in d) below must be submitted. 
       
      For information on reporting block trades through CME ClearPort, please contact customer service at 1.800.438.8616 or via email at ClearPort@cmegroup.com.
       
      ii) CME Direct
       
      Block Trades may be electronically submitted to CME Clearing via entry on the CME Direct platform, which will satisfy the price reporting requirement. The CME Direct platform is directly connected to CME ClearPort. For information on submitting Block Trades through CME Direct, please contact CME Direct Support at CMEDirectSupport@cmegroup.com.
       
                  iii) Trading Floor
       
      Block trades negotiated on the trading floor must be price reported to exchange staff at the Master Pulpit.
       
      d) Information Required when Reporting Block Trades
       
      When reporting a block trade, the following information will be required:
       
      • Contract, contract month and contract year for futures, and, additionally for options, strike price and put or call designation;
      • Quantity of the trade or, for spreads and combinations, the quantity of each leg of the trade;
      • Price of the trade or, for spreads and combinations, the price of each leg of the trade;
      • Buyer’s clearing firm and seller’s clearing firm;
      • Name and phone number of the party reporting the trade (for block trades reported on the trading floor or reported via telephone or email to the CME ClearPort Facilitation Desk);
      • For block trades reported via phone or email to the CME ClearPort Facilitation Desk, counterparty name and contact information must also be provided for trade verification purposes; and
      • Execution time (in Eastern Time) of the trade (i.e. the time at which the trade was consummated)
       
      7.         Block Trade Submission Requirements to CME Clearing
       
      Block trades reported to the trading floor must be entered by the seller or his designated representative into the CME clearing system within 30 minutes of execution and must contain the material terms of the trade, including the allocation to the correct clearing firm unless the trade will clear at the seller’s qualifying clearing member firm. Within 30 minutes after entry by the seller, the buyer or his designated representative must enter into the CME clearing system a time of execution for the trade, note any disagreement with any of the terms of the trade entered by the seller, and allocate the trade to the correct clearing firm unless the trade will clear at the buyer’s qualifying clearing member firm. When reporting spread or combination transactions, each leg must be entered individually. Separate submission to the CME clearing system is not required in the event that the block trade is directly entered into CME ClearPort, CME Direct or reported to the CME ClearPort Facilitation Desk.
       
      8.         Block Trade Recordkeeping
       
      Complete order records for block trades must be created and maintained pursuant to Rule 536 and CFTC Regulations. Additionally, the time of execution of the block trade must be recorded.
       
      9.         Dissemination of Block Trade Information
       
      The date, execution time, contract month, price and quantity of block trades are displayed on the CME Group website at the following link: Block Trades. 
       
      Block trade prices are published separately from transactions in the regular market.
       
      Block trade volume is also identified in the daily volume reports published by the exchange.
       
      10.        Disclosure of Nonpublic Information Regarding Block Trades Prohibited
       
      Parties involved in the solicitation or negotiation of a block trade may not disclose the details of those communications or any non-public information regarding a consummated block trade to third parties. Further, no party solicited to participate in a block trade or otherwise involved in the negotiation of a block trade may trade on the basis of non-public information obtained through the solicitation or negotiation of the block trade prior to the public report of the block trade, except that the counterparties to a consummated block trade shall not be precluded from trading following the consummation of the block trade prior to the block trade being publicly reported.
       
      A broker negotiating a block trade on behalf of a customer may disclose the identity of the customer to potential counterparties, including the counterparty with which the block trade is consummated, only with the permission of the customer.
       
      11.        Block Trades between Affiliated Parties
       
      Block trades between the accounts of affiliated parties are permitted provided that 1) the block trade is executed at a fair and reasonable price; 2) each party has a legal and independent bona fide business purpose for engaging in the trade; and 3) each party’s decision to enter into the block trade is made by an independent decision-maker. In the absence of satisfying the requirements above, the transaction may constitute an illegal wash trade prohibited by Rule 534 (“Wash Trades Prohibited”).
       
      12.        Contact Information
       
      Questions regarding this Advisory Notice may be directed to the following individuals:
       
      Market Regulation:        Colin Garvey, Investigations                                                       312.435.3656                                         Robert Sniegowski, Rules & Regulatory Outreach                       312.341.5991
                                           Erin Schwartz, Rules & Regulatory Outreach                               312.341.3083
       
      CME Clearing:               CME Clearing Support                                                               312.207.2525
       
      For media inquiries concerning this Advisory Notice, please contact CME Group Corporate Communications at 312.930.3434 or news@cmegroup.com.
       
      13.        Text of NYMEX & COMEX Rule 526
       
      Rule 526       BLOCK TRADES
      The Exchange shall designate the products in which block trades shall be permitted and determine the minimum quantity thresholds for such transactions. The following shall govern block trades:
      A.       A block trade must be for a quantity that is at or in excess of the applicable minimum threshold.  Orders may not be aggregated in order to achieve the minimum transaction size, except by those entities described in Sections I. and J. 
      B.       Each party to a block trade must be an Eligible Contract Participant as that term is defined in Section 1a(18) of the Commodity Exchange Act.
      C.       A member shall not execute any order by means of a block trade for a customer unless such customer has specified that the order be executed as a block trade.
      D.       The price at which a block trade is executed must be fair and reasonable in light of (i) the size of the block trade, (ii) the prices and sizes of other transactions in the same contract at the relevant time, (iii) the prices and sizes of transactions in other relevant markets, including without limitation the underlying cash market or related futures markets, at the relevant time, and (iv) the circumstances of the markets or the parties to the block trade.
      E.       Block trades shall not set off conditional orders (e.g., Stop Orders and MIT Orders) or otherwise affect orders in the regular market.
      F.       Unless otherwise agreed to by the principal counterparties to the block trade, the seller, or, in the case of a brokered transaction, the broker handling the block trade, must ensure that each block trade is reported the Exchange within five minutes of the time of execution in the following futures products: Brent Crude Financial, Brent Crude Oil Last Day Financial, Light Sweet Crude Oil, Gulf Coast Sour Crude Oil, New York Harbor ULSD Heating Oil, Henry Hub Natural Gas, RBOB Gasoline, Cocoa, Coffee, Cotton, No. 11 Sugar,         Gold, Silver and Copper. In all other block-eligible futures products and all block-eligible options products, the seller must ensure that each block trade is reported to the Exchange within fifteen minutes of the time of execution. The report must include the contract, contract month, price, quantity of the transaction, the respective clearing members, the time of execution, and, for options, strike price, put or call and expiration month. The Exchange shall promptly publish such information separately from the reports of transactions in the regular market.
      G.       Block trades must be reported to the Clearing House in accordance with an approved reporting method.
      H.       Clearing members and members involved in the execution of block trades must maintain a record of the transaction in accordance with Rule 536.
      I.         A commodity trading advisor ("CTA") registered or exempt from registration under the Act, including, without limitation, any investment adviser registered or exempt from registration under the Investment Advisers Act of 1940, shall be the applicable entity for purposes of Sections A., B., C., and D., provided such advisors have total assets under management exceeding $25 million and the block trade is suitable for the customers of such advisors.

      J.       A foreign Person performing a similar role or function to a CTA or investment adviser as described in Section I, and subject as such to foreign regulation, shall be the applicable entity for purposes of Sections A., B., C., and D., provided such Persons have total assets under management exceeding $25 million and the block trade is suitable for the customers of such Persons.

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