Sometimes it’s tough being average

Back in March the CME Group postponed the effective date of amendments to Rule 553 (“Average Price System”) until July 2 2018 to allow sufficient time for affected exchange clearing member firms and CME Clearing to make the necessary changes to implement the rule.

CME Rule 553 permits a clearing member firm to calculate an average price for trades via its own internally developed average pricing system, rather than requiring the use of CME’s Average Pricing System (APS). However, without using the CME’s APS, the final account allocations of average-priced trades don’t get to CME Clearing. The CME wants to produce a more detailed audit trail because of CFTC regulations which require it to identify the accounts to which average-priced order fills are ultimately allocated. The issue for clearing firms and the CME becomes figuring out how to get final account allocations to CME Clearing by the end of the day.

CME’s proposed solution is to require those firms calculating the average price internally to enter final allocations into its APS. However, that solution results in firms manually entering allocated trades as allocation instructions come in from clients – with the hope that this can be accomplished by the end of day – no small task for many large clearing firms!

With just over a year to go, the postponement will hopefully give all parties enough time to come up with a solution that meets the CME’s needs and isn’t overly burdensome or costly for the clearing firms.