News review : Derivatives

GMEX AND EUREX JOIN FORCES.

Be27.GMEX_HMisraInstead of launching its own platform, Global Markets Exchange Group (GMEX), a European derivatives start-up backed by Deutsche Börse, has thrown its hat into the ring by licensing its swap futures product to the German exchange’s Eurex market.

Under the agreement, GMEX will use Eurex’s execution and clearing arrangements enabling buyside firms to trade the product through their existing membership with the exchange. Although transactions will be arranged through GMEX, the rest of the trade will be subject to the same rulebook and clearing arrangements as Eurex’s own products.

The London-based group, which recently won approval from the UK’s Financial Conduct Authority, is one of a number of derivatives initiatives that have emerged as a result of over the counter regulatory reforms that will push more swap trading onto exchanges and through clearing houses. The move will provide a major boost to participation in GMEX’s eurodenominated Constant Maturity Future (CMF) which is based on the Interest Rate Swap Index Average (IRSIA) and accurately tracks the interest rate exposure at each point on the yield curve by removing the expiry date and marking the contract to market against an IRSIA Constant Maturity Index on a daily basis. The aim is to manage interest rate exposure without a constant need to re-adjust and maintain the liquidity of a given maturity from 2 to 30 years.

According to GMEX CEO Hiranda Misra, “We continue to make very good progress with our launch and this new licensing arrangement with Eurex provides firms with a well-established mechanism to trade and clear our CMF contracts. We are getting very strong support from the trading community particularly the buyside.”

GMEX is not alone as competition is intensifying. Last September, Eurex became the first European exchange to launch a swap future, backed by a patent belonging to Goldman Sachs. More recently, the Intercontinental Exchange penned an agreement to license swap futures developed by Eris Exchange, a Chicago-based exchange founded in 2010. ICE Futures Europe, based in London, will list euro and sterling-denominated interest rate swap futures based on Eris’s design in 2015.

The London Stock Exchange is also planning to debut a swap future in conjunction with some of the largest investment banks, including JP Morgan and Goldman Sachs, through an initiative called Project Rita. Meanwhile, NASDAQ OMX’s NLX venue is also considering introducing a similar product.

© BestExecution 2015

 

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