By Michael Mackenzie in New York
The standardisation of global derivatives is set to enter a new phase, led by the introduction of so-called “MAC” swaps for interest rates across a number of currencies.
The new Market Agreed Coupon contract features pre-set terms that are aligned with the quarterly expiry dates for interest rate futures in March, June, September and December, said the International Swaps and Derivatives Association at its annual meeting in Singapore on Wednesday.
The new contracts come at a pivotal point for the over-the-counter derivatives industry as global regulators work to implement rules that are designed to facilitate greater transparency and open up the $379tn interest rate swap market to greater competition.
Mac swaps will facilitate the trading and hedging of interest rate risk in US dollars, the euro, sterling, yen and for Canadian and Australian dollars.
The contracts will also extend across a range of maturities starting at 12 months and ending at 30 years.
In the US, final rules that will designate how swaps will trade on Swap Execution Facilities are expected in the coming months while large users of derivatives are now required to centrally clear their contracts.
The introduction of a standardised swap contract is expected to fulfil a crucial role in providing investors with an easily traded and liquid instrument that complements bespoke swap structures.
The MAC’s standard terms make it a natural fit with the underlying futures markets and is likely to find favour with electronic swap platforms, known as central limit order books.
The vast majority of swaps in the US are currently transacted via telephone or voice.
James Cawley, chief executive officer at Javelin, an electronic OTC swaps platform, said: “The contract bolsters the argument for Sef rules to require these highly standardised swaps to trade in exchange-like limit books.”