• Revisions to Rule 770 (“Delivery Offset Procedures”)

      • To
      • Members, Member Firms and Market Users
      • From
      • Market Regulation Department
      • #
      • SER-5784
      • Notice Date
      • 02 June 2011
      • Effective Date
      • 02 June 2011
    • Effective immediately, CME, CBOT, NYMEX and COMEX have adopted revisions to Rule 770 (“Delivery Offset Procedures”).  The revisions clarify the requirements for submission of offset requests and eliminate the former requirement that an account owner accepting the offset have an open position in the contract.


      Revised Rule 770 permits a clearing member who carries an account with an open position in a physically delivered contract month that has expired to request to offset the position against an opposite account through a trade transfer in the event the position results from an error, omission or outtrade.  The request must be made to the Clearing House, and in the event that the Clearing House does not receive acceptance of the trade transfer from an account with different beneficial ownership, the Rule requires delivery to take place as required under Exchange rules.  The delivery offset process is intended as a safeguard against delivery defaults where positions in physically delivered contracts result from errors, outtrades or omissions identified after expiration of the contract.


      The revisions to Rule 770 appear below, with additions underscored and deletions overstruck.  



      A member or clearing member who, as the result of an error, omission in the execution of an order or an outtrade discovered on or after the last day of trading, carrieshas a position in a contract which has expired and for which the position holderwho is unable to fulfill the obligationobligated either to make or take physical delivery in that contract, may, with the consent of the account owner(s) or controller(s), request to offset such position against an opposite position held by an account with different beneficial ownership throughof a member or clearing member whether or not such position exists as a result of an error or outtradetrade transfer; provided, however, that the parties to any such error or outtrade mustshall exercise the utmost diligence to resolve the error or outtrade.

      Delivery offset requests must be made to tThe Clearing House. shall accept such request, up to the full quantity of the initial request, upon receiving offset  Trade transfers pursuant to this Rule require that the Clearing House receive acceptance from an account(s) with different beneficial ownership and confirmation of the agreed upon transfer by the party initiating the request.  Such confirmation must be submitted in writing on the form specified by tThe Clearing House shall randomly assign available offsetting positions to each member or clearing member submitting a request, thereby extinguishing each party's obligation to make or take physical delivery; provided, however, that in the event the Clearing House is unable to assign offsetting positions due to an insufficient number of available offsetting positions, delivery shall take place as required under Exchange rules.  All positions transferredoffset pursuant to this Rrule shall take placebe liquidated at the final settlement price of the contract.

      A cClearing member firms representing accounts that have transferred a trade pursuant to this Rule must correctly report the change in open interest todesiring to offset such positions must notify the Clearing House by reporting its final open interest and submitting a request in accordance withpursuant to the schedule established by the Exchange.

      In the event a delivery offset request does not result in a trade transfer, delivery shall take place as required under Exchange rules.

      Nothing in this Rule relieves a clearing member of its responsibilities with respect to open positions in an expiring contract month in a physically delivered contract as set forth in Rule 716,

      The assignment of offsetting positions shall release clearing members and the Exchange from their respective obligations under the contracts.


      Questions regarding this Special Executive Report should be directed to Anthony DiBenedetto, Associate Director, CME Clearing, at 212.299.2152, Melvin Garcia, Manager, Clearing Operations, at 212.299.2144 or Robert Sniegowski, Associate Director, Rules & Regulatory Outreach, at 312.341.5991.


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