BizAnalyst Network: CBOE prepares to list, trade credit derivatives

Friday, June 08, 2007

CBOE prepares to list, trade credit derivatives

CBOE prepares to list, trade credit derivatives

The world of electronic derivatives trading continues to expand. First Eurex, now CME, CBOE and CBOT. Everyone wants to get into Credit Derivatives. I think some buy side participants may see these contracts as cost effective alternatives to OTC Credit Default Swaps. Yet it will take time to build market acceptance.

On June 19, the Chicago Board Options Exchange will launch credit-default options on a handful of companies including Ford, Lear, General Motors, Standard Pacific and Hovnanian Enterprises. "We are very pleased to receive US Securities and Exchange Commission approval for these products which we first proposed last June," said William Brodsky, chairman and chief executive officer of CBOE. "Investors can now take advantage of the synergies between options prices, volatility and credit risk, hedging all three on one electronic platform."

CBOE latest to add credit derivatives
Shanny Basar
08 Jun 2007

The Chicago Board Options Exchange has become the second US market this week to receive regulatory approval to list and trade credit derivatives.

The CBOE is going to launch credit default options on five individual companies on June 19 - General Motors, Ford, Lear, Hovnanian Enterprises and Standard Pacific - with Jane Street Specialists as the designated primary market maker.

William Brodsky, chairman and chief executive of CBOE, said: “We are very pleased to receive US Securities and Exchange Commission approval for these products which we first proposed last June. Investors can now take advantage of the synergies between options prices, volatility and credit risk, hedging all three on one electronic platform.”

Regulatory approval for CBOE’s credit default baskets is expected soon.

This week the Chicago Mercantile Exchange received regulatory approval for its Credit Index Event contract which is due to start trading on June 18 based on an index of 32 investment grade entities.

Last week the US Futures Exchange, which was formed last year when hedge fund Man Group invested in the former Eurex US, said it expects to offer contracts in the fourth quarter which are based on credit default swaps on Fannie Mae and Freddie Mac, the US government-backed agencies and the Chicago Board of Trade said it planned to launch credit futures on June 25.

David Boberski, head of interest rate strategy at Bear Stearns, said in a report: “The new CBOT contract offers a smart combination of design choices and is the most promising structure to date for an exchange to tackle corporate bond credit indices.”

full CBOE article
http://www.financialnews-us.com/?page=ushome&contentid=2347986664

CBOT launches into credit derivatives
Shanny Basar
31 May 2007

The Chicago Board of Trade is launching its first product in the fast growing world of credit derivatives with an investment grade index futures contract for credit default swaps.

Credit default swaps are over-the-counter derivative contracts that allow buyers to hedge against potential credit losses, while sellers assume credit risk in exchange for payment. Market participants include banks, hedge funds and other institutional investors.

Bob Ray, senior vice-president for business development at CBOT, said: “The growth rate in the over-the-counter credit default swap market has been stunning but that brings heightened risk and the CBOT is an expert in helping price discovery and risk management. We wanted to create a product that would best emulate the trading and pricing in the OTC market.”

The new CBOT CDR Liquid 50 North American Investment Grade Index for futures contracts is scheduled to begin trading on June 25.

Gene Mueller, managing director for research & development at CBOT, said approximately a third of credit default swap trade volumes relate to index trading and two thirds is investment grade.

The new product is based on the CDR Liquid 50 NAIG Index developed and maintained by Credit Derivatives Research, an independent research provider. It includes 50 North American investment grade reference entities and is reconstituted every three months to ensure it includes the most liquid entities from the OTC market.

Credit Market Analysis, a data provider used by many buyside firms, will provide pricing information for all the underlying component issues within the CDR Liquid 50 NAIG index.

full CBOT article
http://www.financialnews-us.com/?contentid=2447933037

CBOT, CBOE, EUREX, CME, derivatives products, electronic trading, credit derivatives

Labels: CBOE, CBOT, CME, credit derivatives, derivatives products, electronic trading, EUREX