Trading and Brokering DME Oman Crude Oil and

Trading and Brokering DME Oman
Crude Oil and Related Products
Products
The following product is listed by the Dubai Mercantile
Exchange (DME) and is tradable electronically on CME
Globex, and may be submitted for clearing as Block, Exchange
of Futures for Physical (EFP) or Exchange of Futures for Swaps
(EFS) through CME ClearPort or via the CME facilitation desk:
• DME Oman Crude Oil Futures (OQD) –
Physically deliverable if position held on expiry.
The following related crude products are listed by NYMEX
and are tradable electronically on CME Globex, and may be
submitted for clearing as Block, EFP or EFS transactions
through CME ClearPort or the CME facilitation desk:
• Brent Crude Oil Last Day Financial Futures (BZ) – expires
15 days before end of preceding month.
• Brent 25-Day (Platts) Futures (NBZ) – New expiry, expires
25 days before end of preceding month.
• Light Sweet Crude Oil (WTI) Futures (CL)
EFP is a mechanism that allows an off-Exchange negotiated
trade to be submitted to the Clearing House for clearing
where the submitted EFP is one leg of a transaction involving
a physical product delivery. An EFP may only be used where
there is a related physical transaction, the Clearing House
may ask for supporting documentation evidencing the related
physical transaction. NYMEX rules do not require an OTC
broker to have a futures license to submit an EFP.
An EFP is a versatile tool that allows traders to buy and sell
The following is a selection of related crude products listed by
physical crude or product of whatever quality, location or
NYMEX and are tradable on the NYMEX floor, and which can
delivery method while using futures to manage the price.
be submitted for clearing through CME ClearPort or the CME
An EFP can be submitted until 23:00 Singapore time on the
facilitation desk:
final day of trading for that contract month, so it’s possible
• Dubai Crude Oil (Platts) Calendar Swap Futures (DC) and
BALMO (BI) and Options (AH)
• DME Oman Crude Oil Swap Futures (DOO) and BALMO
(DOB) and Options (DOA)
• DME Oman Crude Oil vs. Dubai (Platts)
Swap Futures (DPO)
• ICE Brent (Singapore Marker) vs. DME Oman Crude Oil
Swap Futures (BSG) – This product is particularly useful
because both price at 16:30 Singapore time and it tracks
the ICE Brent price, but reduces margin requirements as
the position rests on one exchange.
to submit an EFP after the OSP on the final day has been
published.
Example 1: It’s now January and company A wants to buy
500,000 barrels of Murban crude in April from Fujairah.
Company B wants to sell the Murban crude. They agree that
the current price of April Oman is 108.25, and that the Murban
is worth a 50 cent premium, so they strike a bilateral trade
agreeing to a tank-to-tank transfer on an agreed date in April,
at a fixed price of 108.75. At the same time they ask their
broker to submit an EFP through CME ClearPort, where A sells
500 lots of April DME Oman to B at a price of 108.25. Both
would then buy/sell 500 lots in the futures market to be flat
futures on expiry. The price that they’re able to buy or sell the
April futures dictates the effective price of the physical crude.
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DME Oman Crude Oil and Related Products
Why is Example 1 useful? Because the DME Oman futures
contract only allows for loading at the Mina Al Fahal terminal,
company B can’t sell crude through the Exchange directly. The
EFP allows B to sell crude at Fujairah while using the Oman
contract as the pricing mechanism.
Block trade rules only apply to listed futures contracts, eg
OQD, NBZ, BZ, CL, and apply to any outright or intermonth
spread trade on a single product. Blocks can only be
executed and submitted for clearing by a licensed futures
broker. So for example, a March/April Oman (OQD) spread
Example 2: It’s now the last trading day of July, so the
trade can’t be submitted as an EFP/EFS because it involves a
September DME Oman Futures contract is expiring today.
single product. Block trades should be submitted for clearing
Company A is long 600 lots and asks a broker to see if anyone
within 5 minutes of the trade being agreed, and must be a
who is short the futures contract is willing to sell 600,000
minimum size of 100 lots per leg for NYMEX WTI (CL), Brent
barrels of physical Oman crude oil at current market price, in
(NBZ), and DME Oman Crude Oil (OQD) futures.
exchange for an EFP at the same price. Company B is 1,000
lots short the futures, has dealt with company A before, and
offers to sell for 2 cents premium. Company A agrees. They
Trade Submission Process
agree the current market price is about $101.00. Company
The most common way to submit an EFP, EFS or Block is for a
A buys physical crude bilaterally from B at @ 101.02.
broker to enter the details into CME ClearPort. In order for this
Simultaneously, their broker submits an EFP with A selling
process to work the following must all be in place:
600 lots to B @ 101.00. Company A is now flat, and company
B lets the remaining position expire and goes into the
Exchange matching process for the balance of 400 lots.
Why is Example 2 useful? First, Company A and Company
B have dealt with each other physically many times before
and have ample credit lines. The EFP mechanism has allowed
them to choose their counterparty before their positions
go into the matching process, where they don’t know who
• Each counterparty must register their company to use
CME ClearPort. A NYMEX representative can provide
guidance on this process if needed.
• Each counterparty must ask the Futures Commission
Merchant (FCM) to enable the broker to enter deals on
their behalf.
• Each counterparty must ask their FCM to allocate
they will be matched against. Secondly, company A can take
a suitable position limit to the product they want to
delivery from one counterparty. Thirdly, and probably most
trade. It is good practice to tell the FCM what limit you
importantly, all margin will be now returned to the parties
need on each product to accommodate your trading
by their clearer, and they will not be required to submit
needs. If the FCM won’t allow the size requested you
margin to the clearing house during the delivery process.
will be notified before your trade is rejected by the
The disadvantage is that the companies have now lost the
CME ClearPort system. It is also good practice to give
protection of the clearing system, so in the event of a default
the contract code as well as the name, because some
or dispute between them the Exchange will not guarantee the
contract names are similar.
performance of the contract.
EFS is a mechanism that allows a bilaterally negotiated trade
to be submitted to the Clearing House for clearing where the
submitted EFS is one leg of a transaction involving a futures
or swap. It’s commonly used to spread two products, for
example an OQD vs ICE Brent spread, OQD vs NBZ spread,
OQD vs CL or OQD vs DC spread could all be submitted for
clearing as EFSs. NYMEX rules do not require a broker to have
a futures license to submit an EFS.
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DME Oman Crude Oil and Related Products
The second, but less common, method is to ask the CME
Alternative Delivery Procedure (ADP) is sometimes
ClearPort Facilitation Desk to enter the details for you. To do
confused with EFP so it is important to note the differences.
this, e-mail: [email protected], or call: +1 212 299
After contract expiry, an algorithm will match buyers and
2457 with all trade details, including the names of the traders
sellers. If both counterparties agree on contract terms,
and each counterparty’s clearer and clearing account number.
they can declare ADP by notifying their respective clearing
The facilitation desk will only enter a trade once the details
member. The advantage, is that the parties are relieved of
have been confirmed by both parties. The simplest way to
their margin requirements. The disadvantage is that the
do this is for one counterparty to write the e-mail and cc the
companies have now lost the protection of the Exchange
other counterparty when sending it to the facilitation desk.
process, so in the event of a default or dispute between them
The second counterparty can then “reply all” with “I agree”.
the Exchange will not guarantee the performance of the
Please note that there will be a small additional charge of 20
contract. An EFP can be submitted until 23:00 Singapore time
cents per lot for this service.
on the last day of trading (i.e. after the final OSP is published),
To view a demo of the above process, please visit
cmegroup.com/clearport.
whereas ADP can only be agreed and declared after the
Exchange matching process.
For further information on trading and brokering DME Oman Crude Oil and related
products, please contact:
Alan Bannister
Asia Director of Energy, CME Group
[email protected]
Tel: +65 6593 5565
Anais Martin
Customer Relations Manager, Dubai Mercantile Exchange
[email protected]
Tel: +971 43655532
CME Group is a trademark of CME Group Inc. The Globe Logo, CME, Chicago Mercantile Exchange and Globex are trademarks of Chicago Mercantile Exchange Inc.
CBOT and the Chicago Board of Trade are trademarks of the Board of Trade of the City of Chicago, Inc. New York Mercantile Exchange and NYMEX are registered
trademarks of the New York Mercantile Exchange, Inc. COMEX is a trademark of Commodity Exchange, Inc. DME is a trademark of Dubai Mercantile Exchange, Ltd. used
herein with permission.
The information within this brochure has been compiled by CME Group for general purposes only. Neither CME Group nor DME assume any responsibility for any errors or
omissions. Additionally, all examples in this brochure are hypothetical situations, used for explanation purposes only, and should not be considered investment advice or
the results of actual market experience.
FUTURES: Futures trading is not suitable for all investors, and involves the risk of loss. Futures are a leveraged investment, and because only a percentage of a contract’s
value is required to trade, it is possible to lose more than the amount of money deposited for a futures position. Therefore, traders should only use funds that they can
afford to lose without affecting their lifestyles. And only a portion of those funds should be devoted to any one trade because they cannot expect to profit on every trade.
All examples in this brochure are hypothetical situations, used for explanation purposes only, and should not be considered investment advice or the results of actual
market experience.
SWAPS: Swaps trading is not suitable for all investors, involves the risk of loss and should only be undertaken by investors who are eligible contract participants (ECPs)
within the meaning of section 1(a)18 of the Commodity Exchange Act. Swaps are a leveraged investment, and because only a percentage of a contract’s value is required
to trade, it is possible to lose more than the amount of money deposited for a swaps position. Therefore, traders should only use funds that they can afford to lose without
affecting their lifestyles. And only a portion of those funds should be devoted to any one trade because they cannot expect to profit on every trade.
Copyright © 2012 CME Group. All rights reserved.
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DME Oman Crude Oil and Related Products
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