Mutual Offset System

Since 1984, CME has partnered with the Singapore Exchange (SGX – formerly called the Singapore International Monetary Exchange or SIMEX) in an innovative approach to futures trading known as the Mutual Offset System Agreement (MOSA). This agreement enables traders to open a futures position on one exchange and liquidate it on the other, and thereby manage their overnight risk. The first international futures trading link of its kind, this agreement now includes four contracts: Eurodollars, Euroyen TIBOR, Yen-Denominated Nikkei and Dollar-Denominated Nikkei.

How the Mutual Offset System Works
To take advantage of inter-exchange transfer through this system, the customer must first designate a trade as a MOSA trade prior to its being executed. The customer then chooses whether the position will be carried at CME or SGX. For example, a customer could initiate a MOSA-designated trade with a Eurodollar contract at CME in the morning, then send it over to SGX through MOSA in the afternoon, Chicago time. As soon as SGX accepts the trade, the CME position is automatically offset. Once a trade clears the inter-exchange match, the position is liquidated on the originating firm’s books and the trade becomes a new position on the accepting firm’s books. The customer pays margin (performance bond) to the exchange where the position was sent. Additionally, with the Mutual Offset System Agreement:

All positions are transferred at the original trade price;
The inter-exchange transfer is provided at no cost.

Cost Advantages
A spread margin structure among the products affords maximum capital efficiency. This is because MOSA customers with open positions in more than one product group can benefit from potential inter-commodity performance bond reductions. Performance bonds are reduced to the extent that offsetting positions in different products reduce the overall risks of the portfolio. For example, the risk associated with a short position in one product group can be somewhat offset by a long position in another product group, such as Eurodollars versus Euroyen. Only those positions held at one exchange are eligible for the reduced SPAN® performance bond requirements. The potential cost advantages of this feature can be considerable.

Other Benefits of MOSA
The CME-SGX Mutual Offset System Agreement reduces costs associated with trading on foreign markets and enables efficient risk management on a global basis. Additionally, the agreement offers:

Immediate access to the world's most actively traded short-term interest rate futures contracts;
The combined liquidity of both CME and SGX markets;
Complete fungibility of MOSA contracts;
Trading opportunities through all international time zones;
An easy, flexible, cost-efficient and time-tested linkage process.

Settlement Prices
Trades designated for inter-exchange transfer are transferred at the original trade price, and positions are marked against the daily settlement prices of the exchange where those positions are held. Settlements are based on published Inter-Bank Offer Rates (Tokyo for TIBOR and London for LIBOR, which the Eurodollar contract settles to). All MOSA-eligible contracts are cash-settled. Exchange for Physical (EFP) trades, whether generated on CME or SGX, are prohibited from inter-exchange transfer through the Mutual Offset System Agreement.

Trade Execution Only
Positions that have been transferred through MOSA cannot be re-submitted for a second inter-exchange transfer through the system (except, of course, in the case of an error).

A Single Marketplace
MOSA users need not be concerned about two different sets of rules regarding customer protection, trading systems, performance bond/margin policies and business conduct. Both CME and SGX operate under substantially similar rules, philosophies, systems and trading facilities. As such, market participants may actually regard the two exchanges as representing a single marketplace for MOSA contracts.