Exchange for Risk (EFR)

Definition

The term Exchange for Risk refers to a privately negotiated trade involving the exchange of a futures position for a corresponding Over the Counter swap or instrument. Exchange for Risk is one of several Exchange for Related Positions (EFRP) transactions.

Explanation

An Exchange for Risk (EFR) is one of several Exchange for Related Positions trades authorized under Rule 538. An EFR involves the exchange of a futures position for a corresponding OTC instrument. In order to conduct this transaction:

  • The buyer (seller) of the OTC instrument must also be the buyer (seller) of the futures contract.
  • The quantity of the OTC instrument must be approximately equal to the futures contract.
  • The OTC instrument should involve the same underlying asset, or a by-product of the asset, specified in the futures contract.

The other authorized EFRP trades include Exchange for Physical (EFP), Exchange of Options for Options (EOO) and Exchange for Swap (EFS).

Related Terms

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