Similar to the block trading provisions for futures contracts, block trading in options is designed to provide customers with increased trading choices. Block transactions may be executed by eligible parties on or off CME trading floors. To date, 5,670 futures contracts have traded under the block trading rule implemented last November.
For Eurodollar interest rate options on futures, block trading will be permitted for trades and recognized spreads or combinations with a minimum order size of 2,000 options.
For equity index options and recognized spreads or combinations on the S&P 500, Nasdaq 100, S&P Mid-Cap 400, S&P 500/Barra Growth and Value indexes, Russell 2000, FORTUNE e-50 Index and Nikkei 225, block trading will be permitted with a minimum order size of 250 contracts.
Block transactions must be reported to a designated CME official within five minutes of execution. Also, they must be priced at “fair and reasonable” levels in light of the size of the transaction and the circumstances of the parties to the transaction.
Eligible participants include exchange members and member firms, broker/dealers, government entities, pension funds, commodity pools, corporations, investment companies, insurance companies, depository institutions and high net worth individuals. In addition, Commodity Trading Advisors (CTAs) and registered investment advisors — with net assets under management of at least $25 million — may conduct block transactions.
The introduction of block trading was part of a comprehensive package of new programs CME approved last summer to offer increased trading choices for customers via block trading and exchange-for-physical (EFP) transactions as well as improved access to CME’s electronic markets.
CME has provided answers to frequently asked questions regarding block trading on its Web site at http://www.cme.com/market/blockquotes.html.
