Possible article:
What is a Give Up Agreement in CME Trading?
If you trade futures or options on futures on the Chicago Mercantile Exchange (CME), you may encounter a term called give up agreement. This refers to a legal contract between two firms or individuals who participate in a trade but need to transfer the rights and obligations of one side to another party.
The give up agreement allows one party, usually a broker or a clearing firm, to give up its position in a trade to another party, usually another broker or a customer. This can happen for various reasons, such as when the original party does not want to or cannot fulfill the margin requirements, the delivery obligations, or the risk exposure of the trade, or when the customer wants to execute the trade through a different broker or on a different account.
The give up agreement does not create a new trade, but rather transfers an existing one from one party to another while preserving its terms and conditions. Therefore, the price, quantity, expiration date, and other specifications of the trade remain the same, but the identity of the parties in the trade changes. The give up agreement may also specify the fees, commissions, and other charges that the parties agree to pay each other or to split.
Give up agreements are common in CME trading, where multiple parties may be involved in a single trade, such as a spread trade, a strategy trade, or a block trade. Give up agreements can help simplify the settlement process by reducing the number of parties that need to communicate with each other and the exchange. Give up agreements can also help ensure that each party in the trade has a clear and documented record of its rights and obligations.
However, give up agreements also involve risks and responsibilities for the parties involved. For example, the original party that gives up its position may still be liable for any losses or costs incurred by the new party that takes over the position, if the original party did not properly disclose or transfer all relevant information or assets. The new party that takes over the position may also be subject to different margin or collateral requirements, depending on its own risk profile or creditworthiness.
Therefore, it is important to review and negotiate the terms of a give up agreement carefully, especially if you are a broker or a customer who relies on give up agreements to access the CME market. You should also consult with your legal and financial advisors to understand the legal and financial implications of give up agreements, such as the tax treatment, the regulatory compliance, and the dispute resolution.
In conclusion, give up agreements can be a useful tool for managing trades in CME trading, but they require clarity, transparency, and diligence from all parties involved. Give up agreements can help you transfer your position to another party, but they cannot relieve you from your obligations or liabilities. Give up agreements are part of a complex and dynamic market, and you should stay informed and prepared to adapt to any changes or challenges that may arise.