CME expects competition in new interest rate market

CME announced it will launch futures and interest rate swaps based on the Treasury repo financing rate, an alternative reference rate for pricing securities and loans in the US.

CME Group expects competition from rival exchanges for new, US interest rate derivatives markets based on alternative benchmarks to the Libor rate.

Thousands of derivatives contracts are currently linked to the London Interbank Offered Rate (Libor), including swaps and listed contracts offered by ICE and Deutsche Boerse.

Last month CME announced it will launch futures and interest rate swaps based on the Treasury repo financing rate, an alternative reference rate for pricing securities and loans in the US.

CME Group hopes to use its success in new interest rate products, such as the Ultra 10-year treasury futures it launched last year, to gain traction in the new market.

“I would assume that other platforms would offer the [alternative] rate; however, we have the most efficient home in terms of the offsets against our existing products,” said Sean Tully, global head of financial and OTC products for CME Group on its quarterly earnings call.

“We expect to be the natural home. We do expect competition. Competition is good, but we will be extremely closely engaged with our customers and we’re quite sure that we’ll have the right product.”

The Alternative Reference Rates Committee (ARRC) selected the rate as the new benchmark, following concerns from the Federal Reserve that a decline in short-term bank lending has undermined faith in Libor.

Last week Andrew Baily, chairman of the UK Financial Conduct Authority (FCA), announced the regulator will withdraw support for banks submitting Libor prices from 2021. 

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