CME Group, the world's largest and most diverse derivatives exchange, today announced that CME Cleared Swaps are scheduled to launch on Tuesday, September 2, 2008.
CME Cleared Swaps will offer the over-the-counter (OTC) interest rate market the first ever, centrally-cleared interest rate swap available to all market participants. The exchange will provide clearing for the new product through CME Clearing's OTC clearing solution known as Clearing360.
CME Cleared Swaps are standardized, forwarded starting International Monetary Market (IMM) dated swaps. Maturities will initially range from three months to 10 years as well as Overnight Index Swaps for IMM dates. The swaps will be marked to market daily by resetting the fixed rate to the settlement price. As an OTC product, trades are privately negotiated between two counterparties and are then submitted for clearing. Trades can be submitted either through CME Group's web-based Front-End Clearing System or using Swapstream's sPro trading platform. Swapstream is a wholly-owned subsidiary of CME Group.
"CME Cleared Swaps will deliver significant benefits to the interest rate swap market by offering all market participants the post-trade efficiencies and financial safeguards previously only available in exchange-traded products," said Robin Ross, managing director, CME Group interest rate products. "With CME Clearing as the central counterparty to every transaction, the counterparty risk inherent to bilateral OTC trades is substantially reduced. Risk management is enhanced by immediate trade confirmations and neutral, third party mark to market. The standardized product will broaden participation in the interest rate swap market by removing the need for ISDA master agreements and will create much-needed balance sheet efficiencies through automatic netting of positions."
CME Cleared Swaps will be available as both U.S. dollar denominated and euro denominated interest rate swaps. The U.S. dollar denominated swap maturities will be based on fixed and floating quarterly payments. The euro swap maturities will be based on fixed and floating semiannual payments.
Clearing360 is an extension of existing CME Clearing services, offering customers the flexibility of OTC transactions with the risk management efficiencies of centralized clearing. These include central counterparty clearing, which offers greater capital and operational efficiencies, including risk offsets against related futures and options positions; risk management for the credit, operational and legal risks that customers face in OTC trading; and, because CME Clearing is the counterparty to every trade, the risk of default is virtually eliminated.