Presentation on theme: "Chicago Board of Trade Interest Rate Products Market Development 2003 Taipei Interest Rate Futures Conference November 20 - 21, 2003."— Presentation transcript:
Chicago Board of Trade Interest Rate Products Market Development 2003 Taipei Interest Rate Futures Conference November 20 - 21, 2003
CBOT Interest Rate Product Line Family of Curves in the Interest Rate Complex –Treasury –Credit Curves LIBOR (A to AA) Agencies (AAA) –Tax Exempt (AAA) –Federal Funds
Major Trends Late 1970s ~ 1989 –Inflation Peaks and then Declines –The Era of Deficit Spending 1990 ~ 2000 –From Record Deficits to Record Surplus –Series of Market Crises: Asia/Russia/LTCM 2000 ~ –The LIBOR Era –The Electronic Trading Era
Major Factors Affecting Growth Growing Debt Level and Supply of Treasury Securities. Growth in cash market trading Benefits of Futures: –Markets are Open and Transparent –Standardized Products –One Centralized Marketplace Electronic Trading –Speed of Execution –Global Distribution –Cost Efficiencies
Historical Timeline of the CBOT Interest Rate Product Line 1975 – GNMA Futures (Government National Mortgage Association) 1977 – U.S. Treasury Bond Futures. 1979 –“Saturday Night Special” FED changes policy to target the money supply. 1982 – Options on U.S. T-Bond futures; 10-Year U.S. Treasury Note futures. 1983 – US budget deficit hits record $200 bn.
Historical Timeline of the CBOT Interest Rate Product Line 1984 - Options on 10-year T-notes 1985 –Municipal Bond futures 1986 -Oil collapses to $10. 30 year T-Bond yield drops to 7.11 %. “Street” caught in a giant squeeze in cash 9 ¼ T- Bonds of 2016 – basis explodes to 350/32nds. 1987 - Open Outcry “Evening Session” 1987 - October 19 stock market crash – Dow falls 22 % - huge bond market rally.
Historical Timeline of the CBOT Interest Rate Product Line 1988 - 5-Year Treasury Note futures; 30 Day Federal Funds futures. 1990 – Options on 5-Year T-Note futures; 2-Year Treasury Note futures 1991 - Two year Treasury Auction bidding scandal. 1992 - Budget Deficit hits $290 billion. Options on 2-Year T-Note futures.
Historical Timeline of the CBOT Interest Rate Product Line 1994 - Project A Afternoon Session 1995 - Project A Night Session 1997 - Asian currency crisis. 1998 - Russia debt default. Long Term Capital Management collapse. Credit spreads widen, treasury cross hedges lose some effectiveness. 1998 - Start of 4 years of budget surpluses. 2000 – 10-Year & 5-Year Agency Debt futures & options. 2000 - a/c/e platform replaces Project A.
Historical Timeline of the CBOT Interest Rate Product Line 2000 - Record budget surplus of $236 bn. FASB 133 – Hedge Accounting. 2001 -Treasury ends of 30-year bond. 2001 – 10-Year & 5-Year Interest Rate Swap futures and options. 2001 - Electronic trading in treasury futures at 25 % of total. 2002 - Electronic trading in treasury futures at 50% of total. 2003 - Electronic trading in treasury futures surpasses 75% of total volume. 2003 - Begin e-cbot Liffe Connect platform.
CBOT Treasury Futures Average Daily Volume - Contracts
CBOT Treasury Options Average Daily Volume - Contracts
CBOT Treasury Futures vs. Cash $Dollar Volume Comparisons
CBOT Treasury Futures Electronic Platform Share of Volume
CBOT Credit & LIBOR Futures Average Daily Volume
CBOT 30 Day Federal Funds Futures & Options - Average Daily Volume
pension funds bankers cash managers governments insurance companies mortgage bankers thrifts underwriters bond dealers corporate treasurers hedge fund managers investment bankers mutual fund mangers portfolio mangers trust fund managers arbitrage firms Market Participants
CME/CBOT Common Clearing Link The Common Clearing Link (CCL) agreement was signed in April 2003 by the CBOT and the CME. The CCL will follow the same timetable as the switch to the new e-CBOT Powered by Liffe Connect®. When a product begins trading on the new e-CBOT platform, it will also begin clearing through the new CCL. The CCL will clear approximately 85 % of all U.S. futures and futures options.
CME/CBOT Common Clearing Link The CCL will allow for portfolio margining and significant reductions in performance bonds (margins) for certain qualified spreads. Total amount estimated to be reduced for the entire industry exceeds $1 billion. Example 1 – –Long 40 CME Eurodollar futures and Short 15 CBOT 10 Year T-Note futures. –Before risk offset, margins for this spread are $45,500. –After CCL begins, the risk offset will reduce margins to $11,375 for the spread.
State of the art electronic platform. –Host + Gateway + Network Over 110 Firms in 181 locations are participating in the migration to the new e-CBOT platform. Increased built-in functionality – –32 option spread strategies –6 futures strategies. Multiple trade matching algorithms: Price-Time and Pro-Rata. e-CBOT Powered by LIFFE CONNECT®
Timetable for transition –November 24, 2003 Interest Rate Swap products Federal Funds products Municipal bond products Dow Equity Index products –January 2, 2004 Treasury complex products Agency complex products Agricultural complex products