"CME swap futures will allow market participants to access the swap market at different parts of the yield curve with a single trade," said Rzepczynski before the launch. "These new futures contracts should be a strong adjunct to the deep and liquid Eurodollar market, and will provide the market an opportunity to trade credit risk through an exchange structure. At John W. Henry, we look forward to trading this new product."
"We welcome the participation of firms such as John Henry and our three Lead Market Makers in exchange-traded swap futures," said CME Chairman Scott Gordon. "Our market maker program is an innovation at CME that will ensure liquidity in each of the three swap futures maturities."
"The swap curve is increasingly regarded as a benchmark interest rate in capital markets and the overwhelming majority of interest rate swaps priced are based on our Eurodollar interest rate futures," said Jim McNulty, CME President & CEO. "CME provides a significant trading advantage by offering both products at a single exchange with related margin offsets,"
LMMs will post continuous bids and offers each day, minimally from 7:20 a.m. until 2 p.m., helping to ensure the liquidity of the new products. The contracts are traded exclusively on CME's GLOBEX® electronic trading platform, and regular trading hours are from 4:30 p.m. (5:30 p.m. on Sundays) until 4 p.m. the following business day. Subject to the rules and parameters of the GLOBEX matching algorithm, LMMs will receive a minimum percentage of incoming orders if the LMM is at the best bid or offer.
Contract months listed are the March quarterly cycle, and the contracts will settle in cash based on the International Swaps and Derivatives Association (ISDA) U.S. dollar benchmark swap rate with two-, five- and 10-year maturities.
CME swap futures contracts are priced using CME's International Monetary Market (IMM) Index convention, or 100 minus the applicable rate. For example, a rate of 7.20 percent is quoted at 92.80. This pricing convention is familiar to customers using CME's benchmark Eurodollar futures contracts, the world's most actively traded futures contact.
The new contracts are designed to provide an efficient means of trading and managing the risk of swap rates with the benefits of CME's price transparency and financial safeguards. In addition, CME swap futures may be easily spread in an open outcry environment with CME's highly liquid Eurodollar futures market.
CME swap futures contracts have a minimum trading increment (tick size) of one quarter of a basis point (0.0025) equaling $25.00. CME 10-year swap futures have a nominal face value of $100,000, while five-year and two-year swap futures have nominal values of $200,000 and $500,000, respectively.
Customers may achieve potential cost savings in performance bonds due to the ability to recognize offsetting positions in other CME interest rate products, including Eurodollars, at the CME Clearing House. In addition, CME offers customers the ability to use "Exchange Basis Facility" transactions, or the combination of a swap futures position with an equivalent opposite position in the cash market.
Chicago Mercantile Exchange Inc. (www.cme.com) is the largest futures exchange in the United States and the second largest exchange in the world for the trading of futures and options on futures. As an international marketplace, CME brings together buyers and sellers on its trading floors and GLOBEX around-the-clock electronic trading platform. CME offers futures contracts and options on futures primarily in four product areas: interest rates, stock indexes, foreign exchange and commodities. The exchange moves about $1.5 billion per day in settlement payments and manages $28.2 billion in collateral deposits. CME is a wholly owned subsidiary of Chicago Mercantile Exchange Holdings Inc.
John W. Henry & Company, Inc. (JWH®) is an alternative asset manager and one of the largest managed futures advisors in the world. Utilizing global markets in foreign exchange, financial futures and commodities, JWH historically has generated returns uncorrelated to those of equity and fixed income investments. Founded in 1982, JWH employs a disciplined, systematic process to ensure an unbiased approach to investment management
