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September 24, 2014

CME Swaptions Clearing

Risk Magazine recently broke the news that CME will be launching clearing for IR swaptions by November 3rd, pending CFTC approval.

Risk Magazine recently broke the news that CME will be launching clearing for IR swaptions by November 3rd, pending CFTC approval.

On September 4th 2014, CME officially notified CFTC of its plans to accept swaptions for clearing in CME Submission 14-327.

In a manner similar to swaps, the clearing of IR swaptions will start out on a small scale. Only the following swaptions will be cleared initially:

  • USD-denominated
  • European exercise
  • Fixed vs. Floating underlying swap
  • Maximum option expiry of 2y (± 10 days) after acceptance for clearing
  • Maximum tenor for the underlying swap of 30y (± 10 days)

Interestingly enough, the CME Submission does not specify a limit on the moneyness of the swaption strike"Any fixed rate may be specified for the strike price".

Nor does there appear to be a restriction on the reference rate of the floating leg of the underlying IR swap. The example given in the CME Submission is USD 3M LIBOR (i.e. the most standard USD reference rate for swaps), but there's no explicit limitation.


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