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NASDAQ OMX Stockholm, part of NASDAQ OMX Group, Inc., (NASDAQ: NDAQ) announced today that it will be the first exchange in Europe to launch a policy rate futures contract - RIBA - based entirely on the repo rate set by Riksbanken, the Swedish Central Bank. The RIBA contract will enable investments based on expected trends in the repo rate, and will be traded with central counterparty clearing. RIBA will be introduced on April 15, 2009.
"The Central Bank's monetary policy is critically important to interest rate levels in the capital market, and our Riksbank future contract, RIBA, will make it possible to interpret market expectations with regard to key interest rates. The information will benefit both home buyers and asset managers. In the wake of the financial crisis, we have noted an increased focus on efforts to lower counterparty risks and, accordingly, we will serve as the counterparty both for buyers and sellers of RIBA," stated Erik Thedéen, President of NASDAQ OMX Stockholm.
"Members of the Money Market Council look forward to working with NASDAQ OMX in extending offers to trade against the Swedish Central Bank's repo rate," stated Erik Ekman, Chairman of The Swedish Money Market Council. "We see excellent potential for favorable trading in RIBA, and our members have jointly agreed to actively support liquidity in the contracts."
RIBA will be traded in the over-the-counter market, off the stock exchange. NASDAQ OMX Stockholm has signed contracts with a number of market makers, including Danske Bank, Nordea, RBS, SEB, Svenska Handelsbanken and Swedbank that have agreed to maintain and ensure a favorable level of liquidity in RIBA. Trades in RIBA contracts will be reached through bilateral negotiations between buyers and sellers, and reported to NASDAQ OMX Stockholm for central counterparty clearing.
RIBA is a cash-settled futures contract with a term corresponding to the period between two IMM (International Money Market) dates, and computed for final settlement based on the average repo rate for a given period of time. The contract base is a fictitious loan with a nominal value of SEK 1 million.
This is how RIBA works
When a RIBA contract is purchased, the buyer assumes the obligation to (fictitiously) borrow money at the interest rate agreed upon by the buyer and seller, and which meets both parties' anticipated future repo rates. If the repo rate at maturity exceeds the agreed interest rate, the buyer receives the interest difference. Accordingly, buyers of RIBA contracts make money if the interest rate increases.
When a RIBA contract is sold, an obligation arises to lend money (fictitiously) at the interest rate agreed upon by the buyer and seller. If the repo rate at maturity is lower than the agreed interest rate, the seller receives the interest difference. Accordingly, sellers of RIBA contracts make money if the interest rate declines.
For more information about RIBA visit: http://nordic.nasdaqomxtrader.com/riba
