Global Markets Exchange Group (GMEX) is to launch an interest rate swap (IRS) futures contract on its London Derivatives Exchange (LDX) segment.
GMEX’s new product, called a Constant Maturity Future (CMF), has been designed to address the complications for hedging interest rates that have been associated with the standard quarterly (March, June, Sept, Dec) expiring futures contracts. This is a timely launch as the industry continues to adapt to meet the G20-led market reforms to reduce systemic risk by pushing some privately negotiated derivatives onto electronic trading venues and through central counterparty (CCP) clearing houses.
As a key market targeted to move to CCP based futures contracts, the IRS market has been the target of multiple attempts to launch futures contracts by the futures community. The GMEX approach is very different to IRS futures products so far launched, as it provides a much more accurate track of the real exposure to the changes in the curve than existing contracts. As such it uses less margin and is less balance sheet intensive than trading plain vanilla swaps even when these are centrally cleared. It is also more accurate with greater utility than existing swap futures contracts based on feedback from across the market of potential users. These include asset managers, hedge funds, banks, electronic liquidity providers as well as futures trading firms.
GMEX’s IRS futures will be linked to a proprietary index known as the Constant Maturity Index (CMI), which reflects the underlying IRS market in real-time. This has been developed by its group company, Global Derivatives Indices. The index is calculated from tradable IRS inputs from a diverse range of market participants, including banks, investment funds and electronic market markers with additional contributions welcomed subject to GMEX data integrity and index surveillance validation.
GMEX has applied for regulatory approval by the UK Financial Conduct Authority. LDX will be the trading segment of GMEX for developed market derivatives products with the initial launch focussed on the CMF product across multiple currencies. Expansion into other asset classes will follow, some of which involves partnerships with developing exchanges globally with a focus on growing their derivatives markets. GMEX has applied for US patent protection on the unique concepts in its products.