Are there any particular risks that one should be aware of when using SSFs to either invest excess funds or borrow funds at available synthetic rates?

Overview: 

While the High and Low Synthetic strategies are both hedged positions, the futures leg is subject to a daily cash variation of the mark-to-market gain or loss whereas the stock leg is not (mark-to-market gain or loss is reflected in account equity but there is no cash impact until the position is closed).  If, for example, an account holds a High Synthetic position and the stock prices increases significantly, the resultant variation pay on the short futures leg may erode the account’s cash balance resulting in a debit balance which is subject to interest payments.  The net effect in this example would be to reduce and potentially erase the earnings on the High Synthetic position

Is there a benefit to using EFPs if one doesn’t have an existing long or short stock position to swap?

Overview: 

 

One can enter into an Exchange for Physical (EFP) to either invest excess funds or borrow funds at available synthetic rates. Synthetic rates are determined by taking the difference between the SSF and underlying stock and netting dividends to calculate an annualized synthetic implied interest rate over the period of the SSF.

 

High Synthetic Bid Rev Yield – represents the investment opportunity available through an EFP sale (buy stock and sell it forward at a premium higher than the interest your cash generates).

 

Low Synthetic Ask Rev Yield - represents the borrowing opportunity available through an EFP purchase (sell stock and buy it forward at a discount lower than the lending rate available).

What is a single stock future EFP?

Overview: 

 

The EFP allows for the swap of a long or short stock position for a single stock future, maintaining the same economic long or short position but at more advantageous financing rates and margin requirements.  The cost to carry interest rate implied by the single stock future’s price is generally below the rate charged to purchasers of stock who buy on margin, and greater that that provided to sellers of stock on the sale proceeds.

 

Long Stock – alternative is to buy the EFP which involves a single transaction with two legs, a long future and short stock.  The effect of the transaction is to close the long stock position with the short stock position and maintain a long futures position through expiration.  The cost of financing the long stock (margin loan rate * 75% of stock price, less any dividends received) tends to be greater than the EFP cost (EFP premium at ask over stock, plus commission, less interest earned on margin balance).

 

Short Stock – alternative is to sell the EFP which involves a single transaction with two legs, a short future and long stock.  The effect of the transaction is to close the short stock position with the long stock position and maintain a short futures position through expiration.  There is generally a cost associated with holding the stock short (dividends paid in lieu, less interest earned on 30% margin balance, less interest earned on sale proceeds, if any) as opposed to the credit earned on the EFP (EFP premium at bid over stock, plus interest earned on margin balance, less commission).

What positions are eligible for Portfolio Margining?

Overview: 

Portfolio Margining is eligible for US securities positions including stocks, ETFs, stock and index options and single stock futures.  It does not apply to US futures or futures options positions or non-US stocks, which may already be margined using an exchange approved risk based margining methodology.

Why is my Stop Limit Order for Globex listed futures contracts generating an error message regarding the price?

Overview: 

The order handling rules associated with CME Globex futures transactions contain restrictions regarding the relationship between the order limit price and stop price which may not exist in other market venues. In the case of a Sell Stop Limit Order, the limit price must be less than or equal to the stop price (<=).  In the case of a Buy Stop Limit Order, the limit price must be greater than or equal to the stop price (>=).  Sell (Buy) Stop Limit Orders entered outside this convention will generate the following error message: “LMT price should be less than or equal to (equal to or better than) STP price

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