CBOT® Chairman Nickolas J. Neubauer and CBOT® President and CEO David J. Vitale were joined by Cindy Smith, Director of Strategic Reengineering at Freddie Mac, in ringing the opening bell in Chicago.
Neubauer said, “Given the efficiency of the CBOT® marketplace, these new contracts will provide our customers superior and more effective tools for their risk-management needs. With the unmatched liquidity our members provide, our customers now have a new market with tremendous potential for long-term growth.”
Vitale said, “The total outstanding supply of mortgage-backed securities is projected to grow to be larger than that of Treasury securities in two to three years. Thus, the time is ripe for futures and options on mortgage-backed securities. These contracts will open a whole new field of business for our members and customers, adding to the synergies that already exist between our Treasury and Agency markets.”
CBOT® Mortgage futures and options track prices of conventional 30-year mortgage-backed securities (MBS) issued by Fannie Mae and Freddie Mac. The new contracts are designed to focus on mortgage coupon levels at which new issuance is heaviest and trading activity is busiest. The new contracts help to increase liquidity in the mortgage securities market by giving mortgage originators, servicers, dealers, and investors more effective risk-management tools. Prior to the introduction of CBOT® Mortgage futures and options, participants in the mortgage-backed securities market had no truly effective exchange-traded instrument for risk management. CBOT® Mortgage contracts are designed to fill this void by meeting the needs of a variety of participants in the MBS market.
Because they closely track MBS trading volume through a focus on active coupons and recent production, CBOT® Mortgage futures correlate closely with overall mortgage market activity while providing the advantages of exchange-traded futures.
The corresponding options contracts enhance the utility of CBOT® Mortgage futures by providing unparalleled means to manage convexity and fallout risk. While over-the-counter mortgage options are available, they are highly illiquid. Because of this, the CBOT®’s new options will provide a more useful and flexible tool for mortgage originators, mortgage servicers, and other users of mortgage derivatives users. CBOT® Mortgage contracts will trade as follows (Chicago time):
- 7:20 a.m. to 2:00 p.m. (Mon. Fri.) Open Outcry
- 8:00 p.m. to 4:00 p.m. ( Sun. Fri.) a/c/e
