CME Group has changed its rules regarding FX delivery, putting a cap on the amount of deliverable FX that firms can clear via wire transfer when trading deliverable currency products on its platforms.
Currently, under CME Rule 730 deliverable currency futures contracts are required to be physically delivered through CLS where both the trading unit and price increment currency are supported by CLS delivery procedures, unless the clearing firm’s delivery exposure in any single contract is not expected to exceed $25 million.
If firms want to take over $25 million in a deliverable currency and settle it via wire transfer rather than via CLS, they have to get special permission from CME to do so.
But effective February 12 – pending all relevant Commodity Futures Trading Commission (CFTC) regulatory review periods – CME Rule 730 will be amended to establish a $50 million US dollar equivalent cap on a clearing firm’s multi-currency delivery exposure eligible for physical delivery outside of CLS.
In a circular distributed today, the exchange says: “Adoption of the cap will decrease operational risk to the extent that more notional value in FX will settle via CLS rather than wire transfer.”
CME is also removing references to ‘futures’ contracts in Rule 730 “to ensure its applicability to deliverable over-the-counter FX instruments, as well as futures contracts”.
A source close to the exchange tells Profit & Loss that they don’t expect the rule change to make a big difference, as there aren’t typically a large number of requests to physically deliver over $50 million in FX via wire transfers instead of CLS.