July 19, 2013

The electronic regulated swaps exchange trueEX has struck an agreement with CME Clearing to develop credit spread futures based on the newly launched S&P indices and to distribute these products over CME’s Globex trading platform, pending a final agreement.

The move is significant step for trueEX, the first CFTC-regulated exchange for swaps to be created under the Dodd Frank Act, because the highly liquid S&P 500 index futures contracts are exclusively traded on CME.

“Our vision for this contract is that every person in the world who has access to an S&P 500 contract should get access to the truEX contract. And that is what we are able to accomplish with the CME,” said Sunil Hirani, CEO of trueEX, in an interview.

The new trueEX contract will give investors and traders a way to hedge or bet on credit-spread risk for the companies in the S&P 500 index. “It will allow institutional investors to take views on corporate spread risk in futures form,” explained Hirani.

Under the strategic alliance, CME Clearing will also provide clearing services for these products, which is the same clearinghouse where S&P Equity 500 index futures are cleared.

“From the client perspective, they will be able to access the credit futures contact on the Globex network and have it cleared in the same collateral pool as the S&P 500 index,” explained Hirani.

[S&P Dow Jones Licenses 3 New Credit Spread Indices to trueEX ]

"By distributing the contract on the CME Globex electronic trading platform, and clearing through the CME Clearing, it will reach the broadest client community very efficiently, " commented Laurent Paulhac, CME Group's Senior Managing Director of Interest Rate and OTC Products and Services, in the release.

Hirani noted that the investor community is in need of an independently constructed broad based credit spread index, based on the largest corporate and financial debt issuers in the S&P 500. The product set will include truEX Credit Spread Futures based on the on the newly launched S&P Credit Spread Indices. On April 10, 2013, S&P Dow Jones Indices launched three new credit spread indices: the S&P 150 Investment Grade Credit Spread Index, which is a combination of the S&P 120 Credit Spread Corporate Index, based on the largest 120 investment grade issuers of long-term debt outstanding in the S&P 500, and the S&P 30 Credit Spread Financials Index, based on the largest 30 financial investment grade issuers of long-term debt outstanding in the S&P 500.

“The product will provide a transparent, standardized way for the global investor community to express a view on corporate credit spreads in a futures form, something that has never been offered before to the futures client community,” stated Hirani in the release.

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Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in ...