CME Group, one of the biggest U.S. clearers of interest rate swaps, will offer new futures contracts starting November 13, pending clearance from the Commodity Futures Trading Commission.
The plan to offer the new futures contracts comes on the heels of regulation that aims to bring more of the OTC swaps market into clearinghouses.
If the swaps futures are approved by the CFTC, CME will then offer clearing for both OTC interest rate swaps and swaps futures, effectively increasing their business in swaps regardless of the market response to new regulation.
The new futures will convert to interest rate swaps upon expiration, unlike most of CME’s current list of rate swap futures, which convert to cash. Buyers of the futures will become the receivers of a fixed rate of interest and the payers of a floating rate in a CME-cleared rate swap.
Goldman Sachs, Morgan Stanley, Citi, and others have already agreed to boost liquidity during the initial stages of the new contracts. The move suggests that CME’s largest customers believe the swaps futures may be more margin efficient and therefore cheaper than swaps themselves.
“New swap futures will provide tremendous opportunities for margin efficiencies in a capital-constrained world,” CME said on Tuesday.