CME Sets March 14 Launch Date For Agency Note Futures Contracts

The Chicago Mercantile Exchange (CME) today announced it would begin trading in its new 5- and 10-year agency note futures contracts on Tuesday, March 14, pending approval from the Commodity Futures Trading Commission (CFTC). The contracts are designed to meet the demand for risk management tools to serve the burgeoning market for non-callable securities issued by Fannie Mae® (formerly the Federal National Mortgage Association) and Freddie Mac® (formerly the Federal Home Loan Mortgage Corporation), the nation's largest home lending agencies. The debt of both agencies is triple-A rated. Trading in agency note futures will commence via open outcry in the CME's interest rate complex on March 14, pending CFTC approval, with after-hours electronic trading available through the CME's GLOBEX®2 system as of Sunday, March 19. Daytime electronic trading of agency note futures will follow shortly thereafter. "The CME has worked closely for months with both Freddie Mac and Fannie Mae, as well as numerous investors and dealers in their securities, to develop these innovative products," CME Chairman Scott Gordon said. "As the home of the most actively traded U.S. interest rate futures contract, the CME offers tremendous opportunities for the trading of agency futures contracts." In conjunction with the launch and with CFTC approval, the CME will offer block trading of the contracts which many of the prospective customers requested, the exchange said. Along with customer demand, the recent establishment of regular debt issuance calendars by both Fannie Mae and Freddie Mac prompted the CME to create agency futures. For some time now, money managers have been using interest rate swaps and Eurodollar futures strips to hedge their positions in non-callable cash agency debt because of their high correlation with these instruments, which share similar credit profiles. "The strong price relationship between cash agency debt and Eurodollar futures will ensure that the new contracts provide additional trading opportunities for end-users who can spread the new agency note contracts against Eurodollar Packs and Bundles," said CME President and Chief Executive Officer Jim McNulty. The new 5- and 10-year agency note futures contracts will be sized at $100,000 and listed with quarterly expirations. Contracts will be settled through the physical delivery of eligible non-callable Fannie Mae Benchmark notes or Freddie Mac Reference notes without differential. Although these agencies help make mortgage credit available for homeowners, Benchmark notes and Reference notes are the direct obligations of Fannie Mae and Freddie Mac, respectively, and are not mortgage-backed securities. Freddie Mac and Fannie Mae are for-profit, publicly traded corporations that are also government-sponsored enterprises designed to stimulate and facilitate home ownership in the United States. Multi-billion dollar markets in these fixed-income securities have evolved significantly in the past year, attracting a growing variety of investors who have become active in these securities. The CME filed for CFTC approval for agency note futures on January 28.