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They split into two broad camps: those looking to emulate CME Group by launching a deliverable swap future (DSF) that offers users a cleared over-the-counter swap at expiry, and those planning a futures contract that mimics the economics of a swap and settles in cash, in the manner of Eris Exchange. But there are plenty of other differences between those camps – and within them. All have their own strengths and weaknesses, and all are hostage to the uncertain evolution of the fixed-income derivatives market.
Global Markets Exchange Group (Gmex), Eris Exchange, Ice/Liffe, CME Group, as well as Lotce are said to be working on DSFs. CME Europe and Eurex have already gone public with their plans, but rival exchange operators say they could be joined by two more: the London Stock Exchange (LSE) and Nasdaq OMX’s new London market, NLX.
If that happens, they won’t all be competing for long, says the co-head of futures trading at one large bank: Success will be determined by margin efficiency – users will want to benefit from offsets between a DSF and an existing pool of cleared OTC swaps, he argues. That would narrow the field. One thing dealers would like is for clients to make their minds up about the new products on offer – quickly. “If there’s one thing I would say to clients, it would be: ‘Please get off the fence and be a bit more of an activist. If you see a contract design you like, and you think the economics will work for you, let your clearing broker know about it – don’t wait for them to tell you what to do’", says the co-head of futures trading.
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