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Block trades with the CME

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Legendary Market Wizard
Houston, TX
Trading Experience: Advanced
Platform: XTrader
Broker/Data: Advantage Futures
Favorite Futures: Energy
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Agree with pretty much everything @Bladesmith said.

Couple of things I would add...
  • Block Trades aren't limited to CME, most exchanges have some equivalent. While exchanges always had EFP's (Exchange for Physical, literally exchanging a futures position for a physical position) I believe that ICE were the pioneers of clearing off-exchange executed OTC (over the counter) trades. In fact the original ICE trading system (pre them buying the IPE) was a hybrid system that actually allowed both bilateral (ie non-cleared) and cleared swaps trading on the same platform. This was all well before NYMEX/CME launched Clearport.
  • To participate in Block Trades I believe you need to be an ECP (Eligible Contract Participant). While the criteria for this are probably onerous for a retail trader, you don't have to be a large institution. I can and do participate in this market. For CME energy futures the minimum block trade size is 50 lots. On ICE you can block trade Natural Gas trades as small as 25 lots, which given that ICE contracts are a quarter the size of standard NYMEX contracts, means this is equivalent to just 6.25 NG lots! In the energy space alone there are dozens of brokers that specialize in these transactions.
  • In the energy space the majority of trades that are executed off exchange and then blocked and cleared on exchange fall into three categories
    1. Transactions significantly larger than would be seen on exchange. (ie 500 or 1000 lot blocks)
    2. Spreads or Structures that are difficult to trade on exchange. Obvious examples include
      • Cross Exchange Trades - eg NYMEX vs ICE
      • Option Structures
      • Strips or Bundles of Products (ie something like Cal 2018 vs 2019 spread, which would involve buying all 12 months in 2018 and selling all 12 months in 2019 all as one deal)
    3. Products that have never traded electronically but still trade over the counter. ie Calendar Month Average Swaps, Locational spreads, Gulf Coast-New York Harbour etc, Product spreads, Mars-WTI etc.

Last edited by SMCJB; February 20th, 2017 at 11:07 AM. Reason: changed two reasons to three reasons
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