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What are EFPs?

Off-market trading mechanism that enables customers to swap futures and options exposure for an offsetting physical position.

Exchange of futures for physical

An exchange of futures for physical (EFP) is a transaction negotiated off-market in which one party buys physical assets and sells futures contracts while the opposite party sells the physical market products and buys futures contracts.

EFPs provide a mechanism to:

  • swap from a futures to a physical position or vice versa
  • off-market price certainty for large physical vs futures transactions
  • fulfil delivery commitments

The physical and futures components must be 'substantially similar' and equal in terms of either:

  • value (ie the value of the physical being similar to the value of the futures); or by
  • quantity (the quantity of the physical being similar to the quantity of the futures)
Products Exchanged for
ASX interest rate derivatives
  • Australian Dollar denominated:
    • Commonwealth Government securities
    • Semi-Government bonds
    • Corporate bonds
    • Bank accepted bills of exchange
    • Negotiable certificates of deposit
    • Interest rate swaps
    • Forward rate agreements
    • Bond options
    • Caps and floors
    • Swaptions
    • Forward currency swaps
  • Foreign currency denominated securities equivalent to the above list, which are reasonably correlated to Australian securities, are accepted. Exchange for physical in the following currencies are considered reasonably correlated against exchange interest rate futures and options contracts: New Zealand dollar, US dollar, Canadian dollar, British Pound and Euro denominated securities with a similar present value of a basis point (PVBP) exposure.
ASX SPI 200 index futures and options
  • Basket of ASX-traded stocks in one or more companies where the cash value of the baskets of stocks and the notional value of the SPI200 futures fall within 10% of each other.
  • Special size trades (as defined in the ASX Operating Rules) in the S&P/ASX 200 index options contracts (XJO options).
Grain futures and options
  •  Physical grain or financial instrument pertaining to grain of similar value or quantity.
ASX energy futures and options
  • Where the over-the-counter (OTC) component of an EFP is within 10% of the size (eg. MWhs/GJ/tonnage) or value, the following are accepted:
  • Australian and New Zealand electricity
    • OTC swaps, caps and/or options against electricity futures and/or futures options
  • Gas:
    • OTC swaps and/or options against gas futures and/or futures options
Renewable energy certificates (RECs) futures and options
  •  Underlying RECs

EFPs with multiple legs

Multiple futures may be submitted as separate ‘legs’ to match the physical component.

This allows participants to:

  • combine a series of the same futures product with multiple expiries to hedge a physical exposure with multiple payments/exposures over time.
  • combine multiple futures contracts against a single physical eg hedge a six-year physical bond with ASX 3 and 10 year treasury bond futures contracts.
  • achieve a specific price for the transaction eg sell half the physicals at one price and a half at the next-higher price to achieve an overall midpoint price.

It is also possible to combine multiple physical lots into an EFP contract, as long as the net physical position is equivalent to the net futures position in both type and quantity or amount. This can be shown in the following diagram:

Where an EFP involves multiple futures contracts, these contracts must be similar to each other and as close as possible to the physical contract. Eg

  • ASX 90 day bank bill futures are considered similar to ASX 3 Year treasury bond futures, but not to ASX  10 year treasury bond futures.
  • ASX 10 year treasury bond futures are similar to ASX 3 year treasury bond futures but not ASX 90 day bank bill futures.

Where an EFP involves multiple futures contracts, these contracts must be similar to each other and as close as possible to the physical contract.

Steps to trade EFPs

For customers

Contact an ASX 24 trading participant.

For ASX 24 trading participants

  1. Trading participant brokes an EFP transaction with their clients and other trading participants (note that a trading participant can be the broker for both sides of an EFP transaction)
  2. Trading participant(s) submit the EFP transaction electronically via ASX TradeAccept
  3. EFP transaction is scrutinised by ASX to confirm that, as presented, the transaction appears to conform to the ASX 24 Operating Rules 4800 to 4804.
  4. The futures component of the EFP is recorded in the clearing system and cleared normally, as well as being announced on ASX Trade24.