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 world’s leading and most diverse derivatives exchange. It’s 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 Partner
Exchanges
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 Group’s 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
Margin€75m 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 reserved 10
Eligibility & Delivery
Trading Eligibility
• There are no special requirements that must be met for a futures account to trade Deliverable
Swap Futures
• All CME Clearing Members can clear the futures contract, whether an IRS Clearing Member or
not
• To take delivery, a Futures position holder must be an Eligible Contract Participant and must be
registered with CME by a CME IRS Clearing Member as an IRS Participant
• CME will require firms to report delivery intent on each of the last 5 business day prior to
expiration
Delivery*
*An IRS Clearing Member carrying an account that is required to make or accept delivery on an expiring futures contract shall guarantee and
assume complete responsibility for the performance of all delivery requirements set forth in the Rules
Transfers
• The Last Trading Date for the future is the Monday before IMM Wednesday date. The actual time
when the last trade on the future is allowed is 2:00 PM CT
• Transfers of futures position are allowed after the last trading time until 7:00 PM CT
• There is a transfer fee of 10 cents per side of Futures positions prior to delivery and the transfer of
swap trades post-delivery is free
• At the time of delivery, the total quantity of long positions will equal the total quantity of
short positions, which equates to an equal number of PAY and REC Cleared Interest
Rate Swaps after delivery
• When the entire delivery is complete Clearing House will be flat and respective PAY and
REC swaps will be in the Cleared OTC IRS Accounts, with CME as the legal
counterparty for each trade
Matching at Delivery
Delivery ExampleVariation and Initial Margin Movements
11
OTC
MONDAY TUESDAY WEDNESDAY
• Position created • First IM movement
• First VM movement
• Monday: This is the last trading day for the Futures contract; it then will
deliver into a swap
• Tuesday: The Futures position expires and an OTC position is created
• Wednesday: The Futures initial margin is released, and the first initial margin and
variation margin moves for the OTC interest rate swap
FUTURES
MONDAY TUESDAY WEDNESDAY
• Last Trading Day • Last VM movement
• Position expired
• IM released
• Long Positions are converted into receive-fixed swaps
• Short Positions are converted into pay-fixed swaps
Cash Flows Example
12
Action Details Cash Flows
Contract
Listing
• CME sets the fixed coupon at 1.75% the week before the
contract begins trading• N/A
Trade
Execution
• 2 days before the contract expires, Client buys 100 Swap
Futures at 100-02 and the contract closes at 100-04
• Client receives positive VM of (100-04 - 100-02)*10*100 =
€2,000 for the Swap Futures
Daily
Settlement• 1 day before the contract expires, contract closes at 100-16
• Client receives positive VM of (100-16 - 100-04)*10*100 =
€12,000 for the Swap Futures
Final
Settlement
• On the day of expiration, the Swap Future closes (expires) at
100-16• No VM from the Swap Futures (100-16 - 100-16)*10*100 = €0
Physical
Delivery
• Client is delivered into a cleared IRS with the following
details:
• Notional: €10 million
• Direction: Client Receives Fixed
• Maturity: 10 years
• Fixed Rate: 1.75%
• Upfront payment: Client Pays €16,000
• Absent market movements, no cash flow occurs at the
delivery of the IRS, and the swap has an NPV of zero.
• The amount that the Swap Future is above par is structured as
an upfront payment in the swap (100-16 - 100)*10*100 =
€16,000 for the upfront payment
• The client is receiving 1.75%, which is 5.376 bp above the
approximate market swap rate of 1.6962%.
• The amount of the upfront payment is offset by the amount the
swap rate is above market, resulting in no net cash flow for
the Client during its first IRS settlement.
Final Settlement PriceWhat does the final settlement price represent?
The contract’s final settlement price:
Represents the amount of money a market participant would be willing to pay or require to receive in return for taking delivery of
the underlying referenced interest rate swap contract
In the event prevailing swap rate are below the coupon rate reference by the futures contract:• Futures
• The final futures price will be above par
• Total futures PNL will be the difference between the final futures price and the trade price
• OTC
• Long futures position holder will receive fixed at the underlying rate referenced by the futures contract
• Long futures position holder will pay a euro sum equal to the amount of the final futures price minus par
In the event prevailing swap rate are above the coupon rate reference by the futures contract:• Futures
• The final futures price will be below par
• Total futures PNL will be the difference between the final futures price and the trade price
• OTC
• Long futures position holder will receive fixed at the underlying rate referenced by the futures contract
• Long futures position holder will receive a euro sum equal to the amount of the par minus the final futures
price
© 2013 CME Group. All rights reserved. © 2013 CME Group. All rights reserved.
Clearing Readiness Checklist
Check with your Clearing Member(s) and liquidity
provider(s) on their status for DSF
Internal Product approval to trade
Internal Readiness to Trade/Clear the Product
Market Access:
Globex
Blocks
Operational Readiness
Risk/PNL Reporting
Test in New Release
14
Next StepsHow to get ready for EUR DSF?
© 2013 CME Group. All rights reserved. © 2013 CME Group. All rights reserved.
TenorSept-2014
Coupon
Rate
CME
TickersBloomberg
TT(Trading
Technologies)
Esign
alCQG
Thomson
ReutersDTN
2-Year 0.75% T1EU4 PTEA T1E T1E T1E 0#T1E @T1E
5-Year 1.50% F1EU4 PFEA F1E F1E F1E 0#F1E @F1E
10-Year 2.25% N1EU4 PNEA N1E N1E N1E 0#N1E @N1E
Vendor CodesFor primary coupons
15
© 2013 CME Group. All rights reserved. © 2013 CME Group. All rights reserved.
Firm Contact Name Email Phone Number
NomuraPhilipp de Cassan
Noel Durlacher
+44 20 7103 0229
+44 20 7103 3017
Citibank Jason Cohen [email protected] +44 20 7986 2768
Société GénéraleMatthieu Legigan
James Von Dadelszen
[email protected]+44 20 7676 7468
Morgan Stanley Chris Stone [email protected] +44 20 7677 7826
Credit Suisse Oliver Herregods [email protected] +44 20 7888 9212
Below is a list of firms that have volunteered as contacts for clients interested in EUR DSF block
trades. Many other market makers are willing to engage in block transactions.
Block List Contacts
16
© 2013 CME Group. All rights reserved. © 2013 CME Group. All rights reserved.
To learn more about Deliverable Swap Futures, visit
cmegroup.com/dsf or contact a member at
17
For More Information
© 2013 CME Group. All rights reserved. © 2013 CME Group. All rights reserved.
Futures trading is not suitable for all investors, and involves the risk of loss. Futures are a leveraged investment, and
because only a percentage of a contract’s value is required to trade, it is possible to lose more than the amount of
money deposited for a futures position. Therefore, traders should only use funds that they can afford to lose without
affecting their lifestyles. And only a portion of those funds should be devoted to any one trade because they cannot
expect to profit on every trade.
Swaps trading is not suitable for all investors, involves the risk of loss and should only be undertaken by investors who
are eligible contract participants (ECPs) within the meaning of section 1(a)18 of the Commodity Exchange Act. Swaps
are a leveraged investment, and because only a percentage of a contract’s value is required to trade, it is possible to
lose more than the amount of money deposited for a swaps position. Therefore, traders should only use funds that they
can afford to lose without affecting their lifestyles. And only a portion of those funds should be devoted to any one trade
because they cannot expect to profit on every trade.
The Globe Logo, CME®, Chicago Mercantile Exchange®, and Globex® are trademarks of Chicago Mercantile
Exchange Inc. CBOT® and the Chicago Board of Trade® are trademarks of the Board of Trade of the City of Chicago.
NYMEX, New York Mercantile Exchange, and ClearPort are trademarks of New York Mercantile Exchange, Inc.
COMEX is a trademark of Commodity Exchange, Inc. CME Group is a trademark of CME Group Inc. All other
trademarks are the property of their respective owners.
The information within this presentation has been compiled by CME Group for general purposes only. CME Group
assumes no responsibility for any errors or omissions. Although every attempt has been made to ensure the accuracy
of the information within this presentation, CME Group assumes no responsibility for any errors or omissions.
Additionally, all examples in this presentation are hypothetical situations, used for explanation purposes only, and
should not be considered investment advice or the results of actual market experience.
All matters pertaining to rules and specifications herein are made subject to and are superseded by official CME,
CBOT, NYMEX and CME Group rules. Current rules should be consulted in all cases concerning contract
specifications.
18
