GMEX, the London-based derivatives exchange group, is on track to announce its clearing house partner this quarter, according to CEO Hirander Misra.
The firm also expects to provide the market with an update before the end of the year on the status of its application with the Financial Conduct Authority to operate as a multilateral trading facility.
Although GMEX has not formally announced any liquidity partners at this stage, the firm says some market makers and vendors are already testing systems links, with more expected to follow suit in Q1 2012.
GMEX is positioning its Interest Rate Swap Index Average Constant Maturity Futures product in competition with NYSE Euronext Liffe’s Swapnote series of listed interest rate swap derivatives. Constant Maturity Futures have no expiry date, but are instead marked to the firm’s proprietary index, based on tradable prices from interest rate swap market participants.
Swap futures products are already offered by US exchange operators CME Group, Eris and TruEx. But while these exchanges offer contracts at varying tenors, GMEX intends to offer contracts at every maturity from two to 30 years. Contracts will be denominated in 200,000 currency units at the short end and 50,000 further out.
GMEX believes it will offer buy-side firms a more effective means of managing exposures along the yield curve than existing contracts. “The buy-side likes the fact that it mirrors the P&L of a plain vanilla swap,” says Misra, noting the increasing role of the buy-side as price makers as well as price takers in the OTC derivatives markets.
The firm hopes to launch its swap futures contracts in Q2 2014 subject to regulatory approval and having clearing arrangements in place, but may launch other products in the first quarter.
GMEX will initially focus on contracts denominated in euros and British sterling, but has ambitions to expand into the US and Asia. It already has a shell company registered in Delaware, but may opt to license its products to an existing US venue.
Choice of clearing house is considered particularly important to the success of a new derivatives exchange due to the cost and complexity of migrating open interest and the desire of market participants to benefit from offset across their derivatives positions.
NLX, the derivatives exchange launched by Nasdaq OMX earlier this year, clears its trades via Anglo-French multi-asset central counterparty LCH.Clearnet, which is majority owned by the London Stock Exchange Group.