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CME Group, the world's largest and most diverse derivatives marketplace, today announced the launch of cleared over-the-counter (OTC) options on physical agricultural commodities beginning August 24. Clearing will be available through CME ClearPort(R), a set of flexible clearing services open to OTC market participants to substantially mitigate counterparty risk and provide neutral settlement prices across asset classes. These contracts are listed by the CBOT for clearing only through CME ClearPort, and are subject to CBOT rules and regulations.
The exchange will launch 10 OTC cash-settled options products for clearing: European- and Asian-style options on corn, wheat, soybeans, soybean meal and soybean oil. These are in addition to the listed cleared OTC agricultural swaps already available for clearing through CME ClearPort.
"These two types of options on grains and oilseeds will enable market participants to not only privately negotiate the option contract terms but they also will receive the safety and benefits of having them cleared through CME Clearing, virtually eliminating counterparty credit risk," said Barry Goldblatt, CME Group Managing Director of Commodity, Energy and Metals Products and Services. "Our customers said they want to have the flexibility to define option strike prices as well as their month and quantity so they can better tailor trades to more precisely fit their portfolio management needs."
A European-style option is when the payment is determined based on a predefined point of time. An Asian-style option is when the payment is determined by the average underlying price over a pre-set period of time. Both types of options may only be exercised at the expiry date. An OTC option is an agreement exclusively between buyer and seller that gives the buyer the right, but not the obligation, to buy or to sell a particular underlying asset at a later date at and agreed upon price.
Cleared OTC agricultural commodity option market participants must have a net worth of at least $10 million and meet other CFTC regulatory requirements. For more information, please go to www.cmegroup.com/otcags.
