The exchange for physicals (EFP) facility is an off-market trading mechanism that enables customers to swap futures and options exposure for an offsetting stock position. It offers the flexibility and certainty of an over-the-counter (OTC) market, plus the counterparty guarantee of an exchange market. EFPs are approved on the basis of the notional value of the offsetting cash and futures legs being equal.
The EFP mechanism is an invaluable tool for all types of investors, from fund managers equitising cash to arbitrageurs taking advantage of pricing anomalies. Customers are afforded the benefits of an ASX off-market trading facility, such as pre-trade price and execution certainty.
Benefits of EFPs include:
- Flexible order arrangement pre-arrangement, disclosure and withholding stipulations do not apply to orders arranged under EFP rules. The facilitating ASX 24 Participant therefore has maximum flexibility to bring large orders to market.
- Price certainty EFP trades can be transacted at any price agreed between counterparties. EFP trades may therefore legitimately occur at prices different to the prevailing price of a contract in ASX Trade24 at the time.
- Execution certainty EFP trades will be approved by the Exchange as long as they occur in prescribed contracts and do not contravene the business rules of the EFP.
- No affect on open/high/low/close volumes EFPs do not affect open/high/low/close/volume information in the ASX Trade24 market. However, EFP volumes will be included in all ASX 24 market data reporting.
- Ease of a ccess, for example, swap from an ASX SPI 200 index futures position into the underlying stock without having to purchase each and every stock in the correct proportion and at a certain price.
- Choice of stock basket, for example, swap an ASX SPI 200 index futures or options position for the underlying stocks in the index or even a single stock
- Choice of stock or swap. The use of equity swaps, instead of shares in the companies themselves, is acceptable.