An EFF (Exchange of Futures for, or in Connection with Futures) is a transaction type that is privately negotiated and involves a simultaneous purchase and sale of futures contracts on different exchanges. EFFs are negotiated and executed as off exchange transactions outside each exchanges’ trading systems that serve as the centralized markets. EFF is similar to the more common EFP (Exchange of Futures for Physical) except that the second leg of an EFP transaction is a cash market contract and the second leg of an EFF transaction is a futures contract on another exchange.
An EFF is one of a series of transaction types that are commonly defined as Exchange of Futures for Related Positions or EFRP. The requirements for all EFRP transactions, including EFFs, are provided in ELX Rule IV-16. Other types of EFRP transactions include EFP, EFR and EFS transactions.
An EFF, like all EFRP transactions, consists of two discrete, but related and simultaneous transactions. One party must be the buyer/seller of an ELX futures contract and the seller/buyer of a related futures contract at a different exchange. The EFF transaction involves taking opposing positions in similar products offered on different exchanges and can be used to migrate opposing positions between the respective exchanges’ clearinghouses in order to better manage positions and margin obligations.
EFF transactions, like all EFRP transactions, require the counterparties to record the details of the transactions and report those details to the relevant exchanges clearinghouses according to the prevailing rules and procedures.
EFFs are permitted in all futures contracts offered by ELX.
Parties involved in the execution of an EFF transaction must follow operational procedures established by ELX Futures and its Clearing Service Provider, the Options Clearing Corp., and be able to demonstrate compliance with the requirements of ELX Rule IV-16.
Both traders submit the details according to the procedures of their respective clearing firms and/or the clearinghouses of the relevant exchanges. Details of the transaction including clearing firm and account number are required for the submission of details to the clearinghouse [click here for details on how to submit EFF trades].
Assuming that both firms have accounts in good standing and submit matching trade details, the transactions are accepted for clearing and allocated to the accounts of the respective traders along with transactions executed on the centralized market. All EFRP transactions, including EFFS, should appear on customer statements with an indication that the transaction was part of an EFRP.
ELX Futures expects that the EFF will be primarily used for managing positions and margin requirements for related transactions executed on two exchanges. The result of an EFRP transaction depends on the positions of the related accounts at the time the EFRP is executed. The example below provides details for a fictitious pair of EFF counterparties. The most common expected outcomes, which differ depending on the positions in the accounts at the time of the transaction, are provided in the following example:
EFF Example
Trading Corp A wishes to enter an EFF transaction to simultaneously buy a September 2010 ELX US Treasury Bond Futures contract and sell a similar contract on another exchange (“Other Exchange”).
On July 6, 2010 Trading Corp A finds a counterparty, Counterparty B, and the two negotiate and agree to terms including quantity and price.
ELX Futures Transaction
Other Exchange Transaction
Most Common Outcomes
1. Move Position from ELX to Other Exchange.
If Trading Corp A held only an open short position at ELX prior to execution of the EFF on July 6th, the EFF would result in liquidation of the ELX position and establishment of a short position at the Other Exchange.
2. Move Position from Other Exchange to ELX.
If Trading Corp A held only an open long position at the Other Exchange prior to execution of the EFF on July 6th, the EFF would result in liquidation of the Other Exchange position and establishment of a long position at ELX.
3. Liquidation of positions at both exchanges.