Monday, October 18, 2010

CME's big day: clearing interest rate swaps

That big spike you see on the chart above is, partly, a reaction to today's news that CME Group would begin clearing interest rate swaps.

As Reuters points out, a huge chunk of the $615 trillion derivatives market is being forced onto exchanges and into clearinghouses thanks to recent reform legislation. Contracts that used to trade over the counter (OTC) between two private parties are now being cleared through exchanges. CME will compete in this area with LCH Clearnet and the Nasdaq OMX-backed IDCC.

Jeff Carter at Points and Figures has a timely post on CME entitled, "CME Group: Buy It, Close Your Eyes". As you can tell, it's mostly a bull case, but Jeff adds a few caveats and some straight talk about the CME's competition (and there political forces at work here too). Full disclosure: I have family who are long-time CBOT members and current CME shareholders.

When you're done reading Jeff's post on the CME, take a look at his home page for more great stuff on the markets, trading, and the city we call home, Chicago.