- What products are being launched and when?
- What are the benefits of trading UCO and UCOME futures?
- What is the regulatory jurisdiction of the UCO and UCOME futures contracts?
- What are the underlying reference prices?
- What is the Argus Media FOB ARA UCOME assessment?
- How is the final settlement price (the floating price) of the futures contract calculated?
- How do we settle futures on a daily basis?
- Are there price limits?
- How can the futures contracts be traded?
- The futures contract is available to trade as a block. How does it work?
- What are the hours for block trade entry into ClearPort for clearing?
- What are the position limits?
- What is the listing schedule?
- I am a bona-fide hedger, and I need to exceed position limits. Can I apply for a hedge exemption?
- What are the margin levels?
- How do I start trading and clearing this contract?
1. What products are being launched and when?
NYMEX launched two (2) futures contracts on Used Cooking Oil (UCO) on September 16, 2024. The contract size is 100 metric tons and quoted in U.S. dollars and cents per metric ton. The first contract month available for trading and clearing is October 2024. These new futures contracts extend our ESG and renewables offering outside North America and should attract interest from both energy and agricultural clients (existing and new).
2. What are the benefits of trading UCO and UCOME futures?
As the European energy markets continue to evolve and decarbonize, there is a greater focus on renewable transport fuels. The European Renewable Energy Directives (Phase III), covering the period up to 2030, have been focused on increasing the volume of renewable fuels in the energy mix. From January 2021, the renewable content in biodiesel must be 14%, up from the current 10%, and there is an increasing focus on waste oils as part of this strategy. For this reason, products like UCO are coming more into focus. The latest regulations under ReFuel EU from 2025 have also laid out stricter blending requirements into products like sustainable aviation fuel.
Biodiesel blenders are using greater quantities in European products and UCO is also being used in larger quantities in greener diesel products such as hydrotreated vegetable oil (HVO). These changes are creating the demand for risk-based hedging tools to manage a greater exposure to these emerging renewable fuels.
Basis spreads between UCO and Low Sulphur Gasoil futures can be managed using specifically-designed futures contracts.
3. What is the regulatory jurisdiction of the UCO and UCOME futures contracts?
The contracts are listed in the U.S. by NYMEX and cleared in the U.S. by CME Clearing. The regulator is the CFTC.
4. What are the underlying reference prices?
The contracts are based on a UCO FOB ARA and UCOME FOB ARA price assessments by Argus Media. Additionally, two spread-based futures contracts against Low Sulphur Gasoil will be listed.
5. What is the Argus Media FOB ARA UCOME assessment?
The price assessment reflects the values of barges trading in the European market in the ARA region. The price of the UCO is based on trades concluded between 14 and 28 days forward from the assessment date on barges of 500mt. All materials traded must be accompanied by a Certificate of Analysis from accredited inspectors and must be accompanied with RED-compliant certification issued by a European Commission auditing body. Documentation relating to the proof of sustainability (POS) must be transferred between counterparties within 20 days after the bill of lading. The Argus code for this product is PA0035121.
6. How is the final settlement price (the floating price) of the futures contract calculated?
The final settlement price for each contract month is equal to the arithmetic average of the UCO price assessments from Argus Media markets for each day that it is determined during the contract month. In the case of the futures that are based on the spread between UCO and Low Sulphur Gasoil, the same principle applies with the floating price being determined over the average of the month using the UCO price minus the Low Sulphur Gasoil price.
7. How do we settle futures on a daily basis?
We will collate prices from the brokers and provide daily settlement prices for the futures where there is open interest.
8. Are there price limits?
No, there are no price limits.
9. How can the futures contracts be traded?
The futures contracts are available for trading on the Globex electronic trading platform and for submission as a block trade for clearing via ClearPort.
10. The futures contract is available to trade as a block. How does it work?
Subject to certain requirements being met such as minimum trade size, the futures contract can be privately negotiated via the brokers as a block trade and submitted into ClearPort for clearing.
There are minimum quantity and reporting time requirements. The minimum block trade size is five contracts, and trades need to be reported by the broker onto ClearPort within 15 minutes of execution. Firms need to be classified as an Eligible Contract Participant (ECP) in order to be able to engage in block trades. The definition of Eligible Contract Participant (ECP) can be found in Section 1a(18) of the Commodity Exchange Act.
11. What are the hours for block trade entry into ClearPort for clearing?
Trades may be entered into CME ClearPort from 5:00 p.m. Central Time (CT) Sunday to 4:00 p.m. Friday CT, with a 60-minute pause each day from 4:00 p.m. to 5:00 p.m. CT.
12. What are the position limits?
The UCO FOB ARA (Argus) futures will have a spot month limit of 400 contracts. Single Month Accountability Level and All Month Accountability Level are both set at 2,000 contracts. Positions in the UCO FOB ARA (Argus) vs. Low Sulphur Gasoil futures will aggregate into the UCO FOB ARA futures and the European Low Sulphur Gasoil Financial futures (commodity code: GX) where the current spot month limit for the low sulphur gasoil is 1,500 lots and the single and all-month accountability level of 7,000 lots.
13. What is the listing schedule?
Monthly contacts will be listed for 18 consecutive months for the UCOME Biodiesel (RED Compliant) FOB ARA (Argus) futures and the current year plus a further 3 consecutive calendar years for the UCO FOB ARA (Argus) futures. A new monthly contract will be added following the termination of trading in the front month contract for the UCOME Biodiesel contracts and an additional 12 monthly futures contracts will be added following the termination of trading in the December contract each year for the UCO contracts.
14. I am a bona-fide hedger and I need to exceed position limits. Can I apply for a hedge exemption?
Yes, you can apply for a hedge exemption. Market participants may be eligible to receive an exemption from position limits in accordance with Rule 559 based on having bona fide hedging positions (as defined by CFTC Regulation §1.3(z)(1)), risk management positions and/or arbitrage and spread positions. To obtain an exemption application or for further information on the exemption application process, please contact us at NYHedgeprogram@cmegroup.com.
15. What are the margin levels?
Margin levels (outrights and offsets) are constantly under review and will be updated and listed on the product specification pages on www.cmegroup.com.
16. How do I start trading and clearing this contract?
There are various ways you can begin trading these contracts depending on your situation, but we have outlined the simplest and most straightforward process below:
Contact biofuel@cmegroup.com or any of the inter-dealer brokers (IDBs) that service this market, and they will guide you along.
Step 1: Register on Clearport
Step 2: Appoint an inter-dealer broker (IDB) that services this market
Step 3: Request your CME Group Clearing firm to permission your chosen IDB for trade submission
Visit our website for more information on getting set up to trade the contract on Globex and/or as a block trade on ClearPort.
Biofuel and Renewable Fuel Products
Hedge your financial risk in the global biofuels (including waste-based products) and ethanol markets with a wide range of futures and options contracts at CME Group.
All examples in this report are hypothetical interpretations of situations and are used for explanation purposes only. The views in this report reflect solely those of the author and not necessarily those of CME Group or its affiliated institutions. This report and the information herein should not be considered investment advice or the results of actual market experience.
