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International derivatives marketplace CME Group Inc (NASDAQ:CME) says it is about to transform the IRS landscape by launching Interest Rate Swaption clearing.
The launch is scheduled for April 11, 2016, with the initial product scope to include U.S. dollar-denominated interest rate swaptions with European-style exercise, a maximum 2-year option expiry, and a maximum underlying swap tenor of 30 years.
CME underlines the following advantages of clearing swaptions:
- Voluntary clearing provides market participants with the flexibility to reduce the risk of their cleared IRS portfolios;
- Margin offsets of up to 91% possible with cleared IRS when included in swap portfolios;
- Portfolio margining with CME’s cleared IRS and Eurodollar Treasury, and Deliverable Swap Futures;
- Reduces bilateral counterparty credit risk and frees up credit lines;
- Improves Capital Ratios, cutting capital charges that could ultimately be passed on to end users.
Sunil Cutinho, President, CME Clearing, says,
“CME Clearing is proud to be the first clearing house to deliver interest rate swaption clearing, a capital efficient clearing solution that has the opportunity to transform the interest rate swaps landscape for our customers. Swaption clearing enables clients and dealers to substantially reduce their risk and gain margin efficiencies of up to 90 percent by adding swaptions to their CME cleared interest rate swaps portfolios.”
Five clearing members are already approved to clear swaptions upon launch, with other firms working through the approval process to commence clearing swaptions.
For the full press release from CME Group, click here.