LIFFE's Euro Swapnote® futures will afford the European swap market the same hedging and trading opportunities that have become standard in the European bond markets and will also add a new futures dimension to trading. Two, five and ten-year contracts will be available. Unlike other exchange-traded two-year contracts, the Two-year Swapnote® contract will trade with half basis point pricing. All contracts will trade on LIFFE CONNECT™, the world's most advanced electronic derivatives trading system.
Hugh Freedberg, Chief Executive of LIFFE said: "Swapnote® will be an invaluable innovation for the rapidly growing Over-The-Counter (OTC) swap market. The electronic trading revolution is turning once inaccessible derivative instruments into easily traded futures contracts. The European market has expressed a clear need for a two-year contract with half basis point pricing. With Swapnote®, we are committed to opening up this new market place to smaller players, who can now manage their risk in the same way as larger counterparts."
Michael Spencer, Chief Executive of Garban-Intercapital said: "The swap market continues to grow exponentially and is now a much more liquid and reliable benchmark yield curve than government bonds. The time is therefore right for the successful launch of a swap based futures contract and this will further increase liquidity in the underlying OTC swap market."
A swap provides an exchange of fixed for floating interest rates and is used as a means to manage interest rate risk. The swap market has undergone very rapid growth since its emergence in the 1970s. Outstanding amounts in the global interest rate swap market exceeded US$48 trillion in June 2000, of which the Euro accounted for US$22.9 trillion. Liquidity in the Euro swap market is now greater than in government bonds and consequently the swap market has now become the benchmark yield curve. ISDA publishes a daily fixing of these rates. The Swapnote® is a synthetic bond whose settlement price at contract expiry will be priced off the benchmark ISDA Euribor swap fixing rates.
