CME Group is to launch Euro-denominated deliverable interest rate swap futures (Euro DSF) contracts on 14 April, pending CFTC review.
The product has the same economic exposure as an interest rate swap with the margin and liquidity benefits of a futures contract, and at expiration all open positions will deliver into a CME cleared Euro interest rate swap.
Other key benefits include automatic risk offsets with our liquid Treasury and Eurodollar futures and options, and reduced clearing fees as futures are not typically subject to additional costs charged by OTC clearing members.
The Euro DSF contract is designed to meet the needs of European financial market participants, including banks, hedge funds, asset managers and insurers. The new product will complement the existing US dollar-denominated deliverable interest rate swap future (USD DSF) by helping market participants manage their global swaps book.
The USD DSF has traded more than one million contracts in the first year since launch, with record open interest of more than 114,000 contracts in December. Euro DSF leverages CME Group’s Euro interest rate swaps open interest, which currently exceeds EUR1.99trn.
Several firms are planning to serve as market makers for the product, enabling market participants to access deep and liquid markets.
“Nomura is committed to providing our clients with innovative ways to transfer risk, and we are pleased to be able to work with CME Group as a market maker for Euro deliverable swap futures,” says Matthew Reader, global head of rates at Nomura. “With the advantage of exchange-based liquidity, this product will be an extremely valuable tool for both buy and sell-side risk managers and, as such, will be of strong relevance to our clients.”
"As we did with the USD DSF, Societe Generale is committed to further developing our partnership with CME Group on the launch of their new Euro DSF product,” says Mohamed Braham, deputy global head of rates at Societe Generale. “We will provide liquidity to the new swap future contracts that will help clients and the industry gain more efficient exposure to Interest Rates in a capital constrained world.”
Available on CME Globex, Euro DSF will be listed for quarterly expiration on IMM dates, for physical delivery of an OTC Euro interest rate swap at key terms to maturity of two, five and 10 year and notional value of EUR100,000. These contracts are listed with specific fixed rate coupons that approximate market rates. At expiration, the holder of a long futures position will become the fixed rate receiver and floating rate payer in an OTC Euro interest rate swap cleared by CME Group. The contracts will be listed on, and subject to, the rules and regulations of CBOT.
