CME Group to launch interest rate swap futures

Derivatives exchange CME Group is gearing up to launch deliverable interest rate swap futures contracts in November in a move to complement the firm's interest rate futures and options business, and its cleared over-the-counter (OTC) interest rate swap solution.

"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," said Sean Tully, MD 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."

The contracts will be listed on, and subject to, the rules and regulations of the Chicago Board of Trade and will be reviewed by the US Commodity Futures Trading Commission.

CME Group said Citi, Credit Suisse, Goldman Sachs and Morgan Stanley are among the firms who are planning to serve as market makers for the product, and provide liquidity.

"Swap futures fill an important gap in the rates market as they will allow clients to access swap exposure while providing cross-margining with the efficiencies of futures products," said Glenn Hadden, head of global interest rate products at Morgan Stanley.

This 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 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.