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CME Group, the world's largest and most diverse exchange, today announced the introduction of clearing services for over-the-counter (OTC) Ethanol Basis Swaps beginning October 5, enabling the biofuels and other industries to take advantage of the benefits of centralized clearing, including daily mark-to-market margining and reduced counterparty risk.
Oil Price Information Service (OPIS) will provide the cash market prices used to calculate the daily settlement prices per a licensing agreement with CME Group.
CME Group already lists Ethanol futures, which are used as an industry pricing benchmark, and Ethanol Calendar Swaps, also known as Forward Month Swaps. Open interest in these swaps reached a record 8,344 contracts September 5.
The Ethanol Basis Swaps can be utilized to mitigate basis risk that cannot be hedged with trading Ethanol futures or calendar swaps. The initial locations that will be offered for clearing of the Ethanol Basis Swaps are New York Harbor, Los Angeles and the Gulf Coast. Final settlement will be calculated as the cumulative average of the basis value during the final month of clearing and will occur on the business day immediately following the last clearing day.
Ethanol Basis Swaps transactions will take place in private negotiations between the counterparties. The completed transactions are then submitted to a CME Group clearing firm and processed.
CME Group (http://www.cmegroup.com) is the world's largest and most diverse exchange. Formed by the 2007 merger of the Chicago Mercantile Exchange (CME) and the Chicago Board of Trade (CBOT), CME Group serves the risk management needs of customers around the globe. As an international marketplace, CME Group brings buyers and sellers together on the CME Globex electronic trading platform and on its trading floors. CME Group offers the widest range of benchmark products available across all major asset classes, including futures and options based on interest rates, equity indexes, foreign exchange, agricultural commodities, and alternative investment products such as weather and real estate. CME Group is traded on the New York Stock Exchange and NASDAQ under the symbol "CME".
