CME Group Inc (NASDAQ: CME) the world’s leading and most diverse derivatives marketplace, today announced the launch of S&P 500 Total Return Index Futures (S&P Total Return) and S&P 500 Carry Adjusted Total Return Index Futures (S&P Carry Adjusted Total Return) futures. These new products are designed to help market participants mitigate costs and find efficiencies related to new uncleared swap margin rules, which will go into effect on Sept. 1, 2016. The products will be available for trade August 29, pending regulatory review.
Tim McCourt, CME Group Global Head of Equity Products said:
“These innovative products are intended to mimic the economics of a total return swap in futures form, allowing swap dealers and their end customers to avoid higher costs as a result of new swap margin rules. This is indicative of CME Group’s ongoing commitment to meet the changing needs of our customers in an evolving global marketplace.”
Under the new rules, any uncleared swap product must now post initial margin to a third-party custodian for bilateral trade. Because all equity swaps must post 15 percent prescriptive initial margin levels, and swap dealers were previously using portfolio credit, the effect of the new rules will be a substantial increase in cost to dealers. To avoid this increase, dealers can use another cleared product – a future. CME Group’s new S&P Carry Adjusted Total Return and S&P Total Return futures contracts are designed for this purpose.
S&P Total Return futures will function as a traditional index futures contract, with the underlying index being the SPTR index, the most common underlying equity index swap. S&P Carry Adjusted Total Return futures will have the SPCATR index as the underlying, which has quarterly reset functionality built into the index calculation that mimics the reset functionality of an equity swap.
S&P Carry Adjusted Total Return and S&P Total Return futures contracts are listed with and subject to the rules and regulations of the Chicago Mercantile Exchange. Both products will trade via Basis Trade at Index Close continuously throughout the day, and will adhere to a quarterly expiry cycle.