CME to offer clearing for ethanol basis swaps
Chicago Mercantile Exchange (CME) will offer clearing for over-the-counter (OTC) ethanol basis swaps from October 5. The service will offer centralised clearing, including daily mark-to-market margining and reduced counterparty risk, to the biofuels and related industries.
Ethanol basis swaps can be used to mitigate basis risk that cannot be hedged with futures or calendar swaps – contracts the CME already offers. Basis swaps transactions will take place in private negotiations between counterparties, with completed transactions then submitted to a CME clearing firm.
The initial locations offered for clearing of the basis swaps are New York Harbor, Los Angeles and the Gulf Coast.
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