CME Group Celebrates One-Year Anniversary of the Ultra Treasury Bond

CME Group Celebrates One-Year Anniversary of the Ultra Treasury Bond
Fastest Growing Interest Rate Product Ever Launched
CHICAGO, Jan. 11, 2011 /PRNewswire/ -- CME Group, the world's leading and most diverse derivatives marketplace, today marked the one-year anniversary of the Ultra Treasury Bond contract.  The contract, which is listed with and subject to CBOT rules, is the fastest growing interest rate product ever launched by the CME Group exchanges.   

Robin Ross, Managing Director of Interest Rate Products, and Jonathan Kronstein, Associate Director of Interest Rate Products, discuss the one-year anniversary of the Ultra Bond contract here.
The Ultra Bond was launched on January 11, 2010, in response to strong customer demand for a contract that mimics the duration of a 30-year Treasury bond.  Milestones include:

Nearly 4,500 contracts changed hands on its first day of trading;
First quarter average daily volume surpassed 14,000 contracts;
Fourth quarter average daily volume exceeded 52,000 contracts;
On November 24, the Ultra experienced record volume of 349,000 contracts traded, and record open interest of 380,000;
As of December 31, open interest was more than 307,000.


For more information about the Ultra Bond, please visit www.cmegroup.com/ultra. 

As the world's leading and most diverse derivatives marketplace, CME Group (www.cmegroup.com) is where the world comes to manage risk.  CME Group exchanges offer the widest range of global benchmark products across all major asset classes, including futures and options based on interest rates, equity indexes, foreign exchange, energy, agricultural commodities, metals, weather and real estate.   CME Group brings buyers and sellers together through its CME Globex® electronic trading platform and its trading facilities in New York and Chicago.  CME Group also operates CME Clearing, one of the largest central counterparty clearing services in the world, which provides clearing and settlement services for exchange-traded contracts, as well as for over-the-counter derivatives transactions through CME ClearPort®.  These products and services ensure that businesses everywhere can substantially mitigate counterparty credit risk in both listed and over-the-counter derivatives markets.

The Globe logo, CME, Chicago Mercantile Exchange, CME Group, Globex, E-mini and CME ClearPort are trademarks of Chicago Mercantile Exchange Inc.  CBOT and Chicago Board of Trade are trademarks of the Board of Trade of the City of Chicago.  NYMEX and New York Mercantile Exchange are trademarks of New York Mercantile Exchange, Inc.  COMEX is a trademark of Commodity Exchange, Inc.  All other trademarks are the property of their respective owners.  Further information about CME Group (NASDAQ: CME) and its products can be found at www.cmegroup.com. 

TABB Group: Reinventing the Credit Default Swap: CDS on CCP

By Kevin McPartland, Senior Analyst, TABB Group

Whatever you think of credit default swaps after the financial crisis and global recession that ensued, they did have some worth: those that bought them were left protected against what turned out to be a real risk - “credit events.”

So what if we were to take their intrinsic value and lay that over what’s rapidly developing in the OTC derivatives market today?

To wit: OTC derivatives clearinghouses act as an outsourced risk management department for market participants who use them. Rather than managing the counterparty risk internally via collateral and other mechanisms, clearinghouses mitigate counterparty risk for its members via margin requirements, guarantee funds and other tools in their decades-old toolkit.

Clearinghouses, however, though built with the sole purpose of reducing risk, do not completely eliminate risk for OTC derivative transactions. By the nature of the clearinghouse model, clearinghouse member firms are still left exposed (although less so) to other member firms. But perhaps even more importantly, members are exposed to the clearinghouse itself. What if the clearinghouse fails? To that point, the New York Times recently published an article that called clearinghouses “the next too-big-to-fail.”

The last few years (hopefully) have taught us to never say never. Regardless of how unlikely they are to occur, systemically risky events can’t be ignored and must be mitigated. So although clearinghouses are built to never fail (they are not investment banks after all, and don’t seek to take on risk), an economic calamity no one has yet to think of could indeed cause the unthinkable.

So what’s a market participant to do? Dealers today use credit value adjustments (CVAs) to hedge the risk that their counterparty in a bilateral OTC derivative deal fails by adding a few basis points to the cost of the trade for the buyer. Among other things, this CVA calculation takes into account the current CDS spread for the counterparty to predict the potential loss due to counterparty risk.

But theoretically, this practice is unnecessary in the centrally-cleared world since there is no risk that a counterparty will default. But that’s not really the case. Enter the CDS on CCP.

I’m no financial engineer, quant, PhD or trader, but I’m quite sure one of the aforementioned individuals can find a way to create an instrument to hedge the risk of a clearinghouse default. So why not a CDS on the CCPs? We already have CDS on U.S. Treasuries (the ultimate too-big-to-fail, right?) so it only seems logical. Maybe even a CDS CCP Index product that hedges against the risk of any CCP in the world failing.

Alas, the idea creates a huge paradox however – who’s going to clear them?

See the entire report here: 
Reinventing the Credit Default Swap: CDS on CCP (Login required)