CME Group proposed amendments to its rules related to transfer trades to permit futures-style options to be transferred at the original trade price or the most recent settlement price, and to authorize premium-style options to be transferred at the original trade price, the most recent settlement price or a trade price of zero. CME Group expects its new rule to be effective November 20, 2015. Separately, CME Group issued guidance on its rules related to position limits and accountability levels, as well as instructions for applying for an exemption from a position limit. Among other things, the advisory addresses the differences between position limits, position accountability levels and reporting levels; the differences between spot month, second spot month, single month and all months for purposes of position limits and accountability levels and when they go into effect; rules on holding delivery instruments; and rules on when different contracts must be aggregated into one or more base contracts to evaluate position limit compliance. This advisory is scheduled to be effective November 19, 2015.
Compliance Weeds: Beginning October 12, CME Group introduced futures-style options. The principle difference between premium-style and futures-style options is that with premium-style options, premium is calculated at the original trade price and is recognized in a settlement cycle on the day the trade first clears, while with futures-style options, initial margin is assessed against both sides from the initiation of a trade—just like with ordinary futures contracts. As long as a premium-style options contract remains open, the current market value of the option is subtracted in the case of a long option and added in the case of a short option, to determine initial margin requirements. For a futures-style option, after the initial trade event, the option is daily marked to market and variation margin is paid or collected just like with a futures contract. The first futures style options contract on CME Group involved a futures-style option on NYMEX Brent Crude Oil futures.