Russian exchange MICEX is launching two new interest rate derivatives as it prepares to merge with fellow Russian exchange RTS.
The new derivatives are futures contracts on the one-month average RUONIA interest rate and on three-month overnight indexed swap fixing. Both contracts are based on the RUONIA interest rate, which is determined by the Bank of Russia and the National Foreign Exchange Association.
An overnight index swap is an interest rate swap where the periodic floating rate of the swap is equal to the geometric average of an overnight index over every day of the payment period.
Interest rate futures can be used by financial institutions to reduce the risk of losses in case of mismatching the maturity of assets and liabilities on the balance sheet. The new instruments is intended to allow participants to hedge interest rate exposure over a wide time period, thus improving the stability of their businesses.
MICEX president Ruben Aganbegyan signed an agreement in June with RTS chief Roman Goryunov to merge the two exchanges. The deal is expected to complete in August 2011, subject to shareholder and regulatory approval. It is expected to result in post-trade reforms that will make Russia more attractive to international investors.