Why The Market is Trading Deliverable Swap Futures


We wrote earlier this week about the launch of our Deliverable Interest Rate Swap Futures (DSF). Since we announced the launch in September, we’ve seen this as a versatile risk management tool for global investors and traders who face ongoing turbulence in the interest rate market. You can read more on that in this white paper. What we found this week is that our customers feel the same way.

Volume continued to trend higher each day (782 contracts day one, 1,038 day two, 1,276 day three, 3,388 day four) and markets are being made in good size and with the same bid –offer spread as can be found in the OTC interest rate swap market.  Open interest on day three was 1,407, so there was a very high level of stickiness to the positions, or 45 percent of the trades were converted into OI.  Watching the equivalent implied live forward OTC IR swap prices on Bloomberg’s SWPM page (learn how to do that here) indicates that our DSF prices and OTC IR swap prices are trading right on top of each other.

Yesterday’s volume was  3,388 contracts ($338 million notional), primarily in the 5 and 10 year DSF.


December 6, 2012 (representative snapshot) Source: CME Group

Contract Bloomberg Bid Qty Offer Qty Width of Market*
2 Year CTPA <Cmdty> 500     1100 1/2 tick
5 Year CFPA <Cmdty> 750 250 1 tick
10 Year CNPA <Cmdty> 350 350 1 1/2 ticks
30 Year CBPA <Cmdty> 209 100 4 ticks

*Based on the DV01s our swap futures markets are approximately ½ bp wide in equivalent swap market terms…


In addition to our customers rallying behind the product launch, we also had several reporters interested in getting the word out to market participants. The Wall Street Journal’s Katy Burne, Bloomberg’s Matt Leising and Susan Cosgrove for Option City Newsletters all wrote stories after learning about the product.

So what does this all mean? Why so much activity on this product where other products have not performed as well? TABB Group published an excellent piece on DSFs before the launch that gets to at least part of the answer. In his report, Adam Sussman writes that like ETFs and swaps before them, swap futures are an innovative product that fit the current environment:

But, in today’s regulatory environment, some of the benefits of the swap are being destroyed. Standardization and transparency are being favored over flexibility and private negotiations.  In addition, futures have a margin advantage over centrally cleared swaps. 

Jack Callahan wrote more about the margin savings in his post Monday, and we see it as a major advantage to DSFs.

I am most encouraged by what Sussman’s colleague at TABB Group Will Rhode told the Wall Street Journal and I hope he’s right:

“There are a lot of contracts that come to market and never trade, and for ones that go right on day one, liquidity begets liquidity, and it should snowball.”  


Sean Tully is Managing Director of interest rate products at CME Group.

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