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Euro Deliverable Swap Futures - CME · PDF fileday count fraction, ... and CME Rule 90005.C.)...

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  • Euro Deliverable Swap Futures

    Now Available for Trading

    http://www.cmegroup.com

  • Contents

    Introduction to CME Group

    Overview of Euro Deliverable Swap Future (DSF)

    Success of USD DSF Contract and OTC Swaps

    Euro DSF Details

    Next Steps

    2

  • CME Group: Who We Are

    CME Group is the worlds leading and most diverse derivatives exchange. Its where

    companies, institutions and individuals from around the globe come to manage their

    business risks, hedge against fluctuations and protect themselves against price

    volatility.

    Our Global Reach

    ACCESS IN

    150 Countries

    CONNECTIONS THROUGH

    11 Global Hubs

    RELATIONSHIPS WITH

    12 PartnerExchanges

    3

  • Euro DSF Product Overview

    4

    Liquid Means of Managing Rate Exposure

    Economic exposure to interest rate swaps with the simplicity, transparency and margin efficiency of a future

    Standardized futures products offering lower margins than OTC swaps

    Flexible execution via CME Globex, Block trades and EFRPs

    OTC trading advantages including: Ability to block calendar spreads

    Lower block thresholds and longer reporting times

    No block surcharges

    Euro Deliverable Swap Future will launch on April 14th, 2014

    Euro-denominated quarterly IRS contracts expiring on IMM dates for key benchmark maturities (2, 5, 10 years)

    At expiration, all open positions deliver into CME Group Cleared Euro Interest Rate Swaps

    Complements CME Groups market-leading Interest Rate Futures and Options business and Cleared OTC Swap Offering

    Builds off the success of the USD Deliverable Swap Future

    Citi, Societe Generale and Nomura are among the firms that plan to serve as market makers

    Capital Efficiencies Through a Standardized Product

  • USD DSF Success Spurs Euro Product Expansion

    5

    Strong Growth in the first year of

    US dollar-denominated DSF 2nd fastest growing IR Futures

    product in CME Group history

    1.75 million contracts cleared since

    launch, representing $175 billion in

    notional

    Open interest reaching a high of

    114,000 contracts

    Record: 37 and 50 open interest

    holders in the 5y and 10y USD

    DSF

    Driven by Client Demand for margin

    efficient alternatives to swaps

    Leveraging the #1 IRS clearing

    house in global client open interest Euro swaps OI exceeding 2 trillion

    0

    20,000

    40,000

    60,000

    80,000

    100,000

    120,000

    140,000

    0

    2,000

    4,000

    6,000

    8,000

    10,000

    12,000

    14,000

    Open InterestADV USD DSF MARKET ACTIVITY

    Non-Roll Period ADV Roll Period ADV Open Interest

  • Margin Efficiency through StandardisationDSFs offer capital savings via lower margin levels

    6

    Long/Received Short/Paid USD/EUR spread

    10 Year

    Margin75m 10y DSF $100m DSF Gross Margin

    Spread margin

    (% of 200m USDE)

    IRS 2.45% 2.70% 5.15% 1.17%

    DSF 1.50% 1.95% 3.45% 0.53%

    Savings 39% 28% 55%

    By trading a swap versus Deliverable Swap Future package(1), portfolio managers can migrate

    their most vanilla OTC positions to DSF and optimise margin use.

    Other Benefits Include: Trading directly through the Central Limit Order Book or as Block Transaction2 with your

    Executing Brokers3

    All open positions at expiration will be delivered into a CME OTC Cleared IRS or one can choose

    to roll the position into the next delivery month

    Standardised futures products attract lower levels of margin by virtue of limited line items and

    ease of default management

    Indicative Margin Example(4) for 10 year exposure in Euros and US dollars

    Outright positions achieve approximately 30% savings

    Cross market USD/EUR position achieves approximately 50% savings

    (1) Exchange For Swap (EFS) also known as Exchange For Related Product (EFRP)(2) Subject to minimum block threshold and 15 minute reporting time(3) Block market makers for Euro DSF expected to include Citibank, Nomura, Societe Generale, Morgan Stanley, Credit Suisse and RBS(4) Indicative margins as of March 2014 for illustrative purposes only

  • 2013 CME Group. All rights reserved. 2013 CME Group. All rights reserved.

    European Deliverable Swap Futures

    Reference Tenors 2, 5, 10 Year

    Delivery Months March Quarterly Cycle (March, June, Sept, Dec)

    Contract Fixed Rate Set by the Exchange when a futures contract is listed for trading, as a rate per annum with 30/360

    day count fraction, at an integer multiple of 25 basis points per annum.

    Price Basis 100 points plus NPV of deliverable grade IRS

    Contract Size 1,000 per point (100,000 per contract)

    Minimum Price Increment Reference Tenor Minimum Price Increment

    Per contract

    Block

    Threshold*

    2-Year 0.005 points (5 per contract) 1,500

    5-Year 0.01 points (10 per contract) 750

    10-Year 0.01 points (10 per contract) 500

    Last Trading Day Second TARGET settlement day before 3rd Wednesday of futures Delivery Month

    Trading Hours CME Globex: 23:00 PM GMT to 22:00 GMT, Sun- Fri

    Trading in expiring futures terminates at 5:15pm CET on Last Trading Day

    Tickers CME Ticker Secondary Ticker**

    2 Year T1E T2E

    5 Year F1E F2E

    10 Year N1E N2E

    Matching Algorithms Outrights Calendar Spreads

    FIFO (F) Pro Rata (K)

    * Block reporting time is 15 minutes

    ** In the cases when interest rates move dramatically, CME may list a second contract with a notional coupon rate that matches current market rate.

    7

    Contract Specifications

  • 2013 CME Group. All rights reserved. 2013 CME Group. All rights reserved.

    Delivery Day

    Delivery

    Standard

    Delivery

    Method

    Delivery

    Eligibility

    First CME Clearing Business Day before 3rd Wednesday of Delivery Month

    Fixed Rate Payer Short Futures position holder making delivery

    Floating Rate Payer Long Futures position holder taking delivery

    IRS Effective Date 3rd

    Wednesday of Delivery Month = Delivery Day

    Currency EUR

    Notional Amount Futures Contract Size= 1,000 per point ( 100,000 per contract)

    Business Day(s) TARGET

    Business Day Convention Modified Following

    Termination Date Anniversary of IRS Effective Date at Futures Reference Tenor

    Fixed Rate Payment Dates Annually, from IRS Effective Date

    Fixed Rate Contract Fixed Rate

    Fixed Rate Day Count 30/360

    Floating Rate Payment Dates Semiannually, from IRS Effective Date

    Floating Rate Option EUR-EURIBOR-Reuters

    Designated Maturity 6 Month

    Spread None

    Floating Rate Day Count Actual/360

    Compounding None

    Physical delivery of IRS that meets Delivery Standard.

    Delivery Day, Clearing Acceptance Date, and Clearing Effective Date =

    First CME Clearing Business Day preceding 3rd Wednesday of Delivery Month.

    Delivery invoice price =

    IRS Initial Payment Amount, as determined by contract final settlement price, P:

    If 100 < P, IRS Floating Rate Payer pays 1,000 x ( P 100 ), rounded to nearest cent.

    Else, IRS Fixed Rate Payer pays 1,000 x (100 P ), rounded to nearest cent.

    To participate in physical delivery, a Futures position holder must be an Eligible Contract Participant

    (17 CFR1.3(m) and CME Rule 90005.C.) and must be registered with CME by a CME IRS Clearing

    Member as an IRS Participant (CME Rules 90005.A. and 90005.B.).

    8

    Euro Deliverable Swap Futures Details

  • 2013 CME Group. All rights reserved. 2013 CME Group. All rights reserved.

    The Deliverable Swap Futures pricing convention is similar to that of CBOT Treasury Note and Bond

    futures, with prices quoted in points with par equal to 100 points

    Calculated as in 1 basis point x 10 x position

    Fixed Rate Payment date is semi-annual based on the effective date

    Floating Rate Payment date is quarterly based on the effective date

    As a futures contract, Deliverable Swap Futures will not receive PAI

    Upon delivery of the futures, the resulting Cleared OTC IRS contract will be subject to PAI

    Daily Settlement prices for Deliverable Swap Futures are set based on trading activity on CME Globex at 5:15

    CET (Central European Time)

    Cleared OTC IRS valuation is based off closing curves, which include OIS discounting

    Like many futures products, prices for Deliverable Swap Futures can diverge from those observed in the

    underlying swaps curve, dependent upon the conditions of price discovery in each venue

    Price & Payment

    Price Alignment

    Interest

    Daily Settlement

    Final settlement prices are based on market activity on CME Globex

    It settles to a volume-weighted average price (VWAP) of trades on Globex at 5:15 CET (Central

    European Time)Final Settlement

    Notional Coupons for new contract listings will be announced on or about the First Business Day of March,

    June, September and December. New, deferred contracts will be made available for trading on the last trading

    day of the front expiring contract

    Fixed rates for DSF contracts shall be determined by the exchange and published on our website.

    In the cases when interest rates move dramatically, CME may list a second contract with a notional coupon rate

    that matches the a new, current interest rate

    Notional Coupons

    9

    Pricing & Payment Details

  • 2012 CME Group. All rights re

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