University College London Validates GMEX Constant Maturity Future - UCLPperforms Study To Evaluate Viability Of Unique Aspects Of GMEX Constant Maturity Future Product

A team from the Computer Science Department of University College London (UCL), led by visiting professor Donald Lawrence, carried out an independent evaluation of the overnight process that maintains the Constant Maturity aspect of the GMEX Interest Rate Swap Index Average (IRSIA) Constant Maturity Future (CMF) product as an alternative to Interest Rate Swaps (IRS).

The study focused on analysing the cost of the end of day novation to the next day’s forward rate roll, analogous to the carry cost.  It concluded that an average year’s worth of novation cost would not be significant for any tenor during the period analysed.
 
It further concluded that the total lifetime cost to use the CMF as a hedge, for an asset to maturity, is also lower than the overall cost of hedging using Interest Rate Swaps. The research sample was based on the latest available full year data (2013) for the Euro interest rate swap curve.  The findings have been published by UCL in an academic paper.  This paper and supporting data are available from GMEX to institutions that intend to examine the use of this product as an alternative to interest rate swaps for the hedging of an asset portfolio.  
 
James Davies, COO of GMEX said “We are pleased to see that the UCL findings have demonstrated the cost of hedging using IRSIA CMF is demonstrably lower than using Interest Rate Swaps and that the implicit carry cost is small relative to the tick size and appears low enough to be non-frictional.”

“Our findings indicate that the GMEX IRSIA CMF product can provide a viable alternative to the use of interest rate swaps for buy-side and sell-side institutions to hedge their portfolio.” said Visiting Professor Donald Lawrence, Department of Computer Science with Risk & Mathematics analysts, from UCL.
 
GMEX will launch a Multilateral Trading Facility later this year, subject to approval from the UK Financial Conduct Authority. The initial launch will focus on these pioneering GMEX Constant Maturity Futures contracts for Interest Rate Swaps, which will be traded on its London Derivatives Exchange (LDX) segment.