The Depository Trust & Clearing Corporation has welcomed the trading in futures contracts linked to its proprietary index, the DTCC GCF Repo Index.

The futures products began trading on 16 July on NYSE Liffe US, the US futures exchange of NYSE Euronext.

Two-day volumes across US Treasury GCF Repo futures, MBS Repo futures and Agency GCF futures reached over 6,000 contracts traded.

The DTCC GCF Repo Index allows traders to hedge their interest rate exposure using the index as a benchmark which is linked to general collateral finance repurchase agreements (GCF Repos).

The DTCC GCF Repo Index is the only index that tracks the average interest rate paid each day for the most-traded GCF Repos contracts in the US Treasury, federal agency and mortgage-backed securities, issued by the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). These comprise instruments which clear at DTCC’s Fixed Income Clearing Corporation.

The index’s rates are par-weighted averages of daily activity in the GCF Repo market and reflect actual daily funding costs experienced by banks and investors, per underlying asset class. The DTCC GCF Repo Index is a more precise measure of the interest rate market since it is based on fully executed transactions and not based on rate estimates which are principally used by other benchmarks.

“Futures on the GCF Repo Index provide bankers and investors, for the first time, with the ability to hedge interest rate exposure related to overnight funding costs for executed transactions,” says Murray Pozmanter, DTCC managing director and general manager, clearing services. “Existing benchmarks are subjective rate estimates, which do not reflect actual, fully collateralised and centrally cleared repo transactions like the GCF Repo Index does. This new and innovative product has the potential to become an effective tool for mitigating short term interest rate risk.”

The index also reports the total par value of the GCF Repo transactions each day and serves as a reference rate by which certain derivatives, such as US Treasury futures, are traded.