CME Group has issued an advisory notice prohibiting transitory exchange for related positions (EFRPs) on each of the Chicago Mercantile Exchange (CME), the Chicago Board of Trade (CBOT), the New York Mercantile Exchange (NYMEX) and the Commodity Exchange (COMEX). Pursuant to the advisory notice, transitory EFRPs, which had previously been permitted in CME foreign currency products, NYMEX energy products and COMEX and NYMEX metals products, will no longer be permitted as of June 2, 2014.

As provided in the advisory notice, a transitory EFRP is one whose execution is contingent upon the execution of another EFRP or related position transaction where the transactions result in the offset of the related positions without incurring market risk that is material in the context of the related position transactions. Under the newly articulated policy, each transaction must have integrity as an independent transaction exposed to market risk. The time period between transactions is also a factor in determining whether a transaction is a transitory EFRP. However, an exchange of futures for physicals in foreign currency futures in which the foreign currency position is immediately offset is permitted under revised CME Group Exchanges’ Rule 538.K. 

The advisory notice also provides further information relating to EFRP recordkeeping obligations, including the requirement to maintain all relevant records for the related position transaction. The advisory notice and related rule revisions will become effective on June 2, 2014. 

The advisory notice, which was deemed approved by the Commodity Futures Trading Commission pursuant to CFTC Regulation 40.5, is available here.