CME Group interest rate products

From MarketsWiki

CME Group offers an extensive listing of interest rate futures and options products, and its Eurodollar futures contract was the world's most actively traded futures offering again in 2007. CME Group's Eurodollar options ranked second among options contracts, trailing only the Kospi 200 Options listed on the Korea Exchange^[1]. It should be noted, however, that given the small contract size of the Kospi option, volume totals alone offer a misleading picture. In terms of broad institutional usage, the Eurodollar option stands at the top of the heap among options products.

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CME Group interest rate products span the entire U.S. dollar-denominated yield curve following the merger of the Chicago Mercantile Exchange - which traditionally focused on shorter-dated terms - and the Chicago Board of Trade, which was most active at the longer end of the yield curve.

Short-, medium- and long-term interest rate risk can be managed with products based on Eurodollars, U.S. Treasuries, swaps, other dollar-related instruments, and products for managing interest rate risk in Europe and Asia.

CME Group interest rate futures products are primarily traded electronically, while others are traded both electronically and side-by-side through open outcry on the trading floor. Although there has been a gradual increase in interest rate option electronic trading volume, it does not yet compare to the much larger volume percentage of interest rate options traded via open outcry.

1 2007 Average Daily Volume
2 CME Group interest rate futures and options products
3 Regulation and Clearing
4 History
5 News
6 Other CME Group Product Areas
7 References

2007 Average Daily Volume

In 2007 CME Group interest rate trading volume averaged 6.9 million contracts per day, up 23% from 2006 annual volume. Eurodollar futures and options dominated the volume.^[2]

CME Group interest rate futures and options products

CME-originated products

CBOT-originated products

Regulation and Clearing

Regulated by the Commodity Futures Trading Commission, CME Group's interest rate product customers deal anonymously in a fully transparent market, where large and small customers have equal access to the same prices and same deep pool of liquidity. A central futures clearing mechanism, CME Clearing, settles all trades and acts as the counterparty between buyers and sellers, thus virtually guaranteeing the creditworthiness of every transaction.

History

With the merger of CME and the Chicago Board of Trade in July 2007, the newly merged exchange can claim introduction of the first interest rate futures product in the mid-1970s -- futures on GNMA (Government National Mortgage Association) instruments launched in October 1975 on the Chicago Board of Trade. (Though this was the first interest rate futures contract, it no longer trades and has been delisted for some time.) Just a few months after GNMA futures were launched, in early 1976 Chicago Mercantile Exchange answered with futures on 90-day Treasury bills, and in 1978, the CBOT introduced futures on 30-year Treasury bonds.

Eurodollar futures, the first cash-settled contract, which set the course for scores of other contracts to adopt cash settlement in future years, was introduced at CME in 1981. The contract called for settlement in cash, in effect a payment on the last trading day of the difference between a reputable, independent and widely accepted cash price and the futures price. The cash-settlement innovation safeguarded the futures contract's usefulness to hedgers and opened the way for new types of contracts on which a delivery option would be impossible or prohibitively expensive.

Again, generally, CME and CBOT concentrated their individual interest rate listings at different ends of the yield curve -- CME offering products at the shorter end and CBOT at the longer-dated end.

News

On October 1, 2007, CME Group launched futures on the Lehman Brothers U.S. Aggregate Index, a benchmark debt index for U.S. investment-grade fixed income securities.

CME Group announced that in the first quarter of 2008, it plans to launch CME Swaps on Swapstream, the first OTC interest rate swap to offer the full benefits and financial safeguards of central counterparty clearing. CME Swaps on Swapstream will include forward-dated interest rate swaps denominated in U.S. dollars and in the euro and will be traded on the Swapstream sPro™ platform. (CME in July 2006 acquired London-based Swapstream, an interdealer electronic trading platform for interest rate swaps, for $15 million.)^[3]