CME has become the latest exchange to launch a futurised version of an interest rate swap. Early trading was encouraging but has the regulatory landscape shifted so much that CME can succeed where others have failed asks William Mitting?
The path of attempts to launch futurised versions of
over-the-counter interest rate swaps is littered with contracts
that have failed to live up to the hype. In 2001, Liffe
launched a series of SwapNote contracts, aiming to replicate
the economic exposure of interest rate swap products in a
futures contract. The Board of Trade launched an interest rate
product in 2005. After an encouraging start, both contracts
have failed to provide a real alternative to the
over-the-counter the market.
The world has changed since then though with Dodd-Frank and
making the OTC markets hostile territories for banks, whose
outlook to the swap market has changed. "We realise that the
game is moving against us," said a swaps trader at a tier 1
bank. "And we want to make sure that we are still in the
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