CME Group is to launch deliverable interest rate swap futures contracts on 13 November 2012.
The new product complements CME Group's interest rate futures and options business, and its cleared over-the-counter interest rate swap solution.
The contracts will be listed on, and subject to, the rules and regulations of CBOT and will be submitted to and reviewed by the CFTC.
Interest rate swap futures were created to meet strong demand from financial market participants including banks, hedge funds, asset managers and insurers. Citi, Credit Suisse, Goldman Sachs, and Morgan Stanley are among the firms who are planning to serve as market makers for the product, enabling market participants to access deep and liquid markets.
"Deliverable swap futures benefit clients by providing a unique new way to access interest rate swap exposure, further strengthening our position as the leading OTC clearing solution for US customers," says Sean Tully (pictured), managing director of interest rate products at CME Group. "Our customers will now have a complementary standardised product that provides the advantages offered by futures contracts including pricing transparency, the automatic netting of positions, and margin savings achieved through cross margining versus all other futures and options cleared through CME Clearing."
"We are pleased to be able to work with CME Group as a market maker for deliverable swap futures," says Nick Brophy, head of North American rates trading at Citi. "This innovative product allows Citi and our clients to capture the benefits of futures trading while maintaining the flexibility to take physical delivery of a CME cleared interest rate swap."
The product has the same economic exposure as an interest rate swap, the margin and liquidity benefits of a futures contract, and at expiration all open positions will deliver into a CME cleared interest rate swap. The product will be a standardised future, trading both electronically on CME Globex and via open outcry, and will be eligible for privately negotiated transactions.
Futures contracts will be listed for quarterly expiration on IMM dates, for physical delivery of OTC US dollar interest rate swaps at key terms to maturity (two, five, 10, 30 years). Contracts will be quoted on a price basis, with a fixed coupon for each contract that is set by the Exchange when the contract is listed for trading. At expiration the holder of a long futures position will become the fixed rate receiver and floating rate payer in an OTC interest rate swap cleared by CME Clearing.