CME EURODOLLAR OPEN INTEREST SURPASSES
ONE MILLION PRIOR TO 10-YEAR ANNIVERSARY
CHICAGO, Nov. 4 /PRNewswire/ -- A month short of its 10th anniversary, the Chicago Mercantile Exchange's (CME) Eurodollar contract shattered the one-million open interest level, an astonishing feat never before achieved by any futures contract.
Spurred on by the global need to manage interest-rate risk, Eurodollar futures open interest surged to 1,009,193 at close of trading on Friday, Nov. 1, pushing the dollar value of outstanding CME Eurodollar futures contracts to more than $1 trillion, an amount of money equal to nearly one-fifth of quarterly U.S. Gross National Product and one-quarter of the national debt. Record Eurodollar open interest, in turn, pushed total exchange open interest to an all-time high for any exchange at 2,801,648 positions.
"The success of the Eurodollar contract clearly signifies the importance of the Chicago Mercantile Exchange and risk management to our global economy" said CME Chairman John F. Sandner. "In just 10 years, trading of Eurodollar deposits and futures on Eurodollars by banks and corporate financial institutions has become an indispensable part of the world marketplace."
Sandner added, "It is propitious that this milestone is occurring as we leave for our annual International Financial Symposium in London."
"Eurodollars" are U.S. dollars on deposit in offshore banks. Various estimates put the current value of all Eurodollar deposits at approximately $3.5 trillion. By comparison, approximately $1.5 trillion were on deposit when the CME's Eurodollar contract was launched on Dec. 9, 1981.
The CME's Eurodollar contract enables banks and large corporations to "lock in" an interest rate on a $1 million time deposit. For instance, if a corporate treasurer fears that rates will rise, he or she can "go short" (sell) Eurodollar futures. If rates begin to rise -- since futures prices and rates move inversely -- the price on the Eurodollar futures contract will fall and the actual interest paid on the anticipated loan will be offset by a profit made when the futures position is closed. The risk manager has thereby eliminated his interest-rate risk.
The growth in open interest in the Eurodollar futures contract is an indication of the volatility in the underlying Eurodollar market and the conviction of market participants. Open interest is the barometer of the contract's success as a hedging instrument.
Approximately 90 percent of large participants in the Eurodollar contract fit the "commercial-user" description. A "commercial user" is one who's involved in doing business in the underlying cash market and, therefore, can utilize futures contracts to manage price risk.
"In an environment where interest rates are volatile, there is great demand for risk-shifting instruments," explained CME President William J. Brodsky. "The CME Eurodollar contract has been so successful because it has filled a need in this vast and important financial marketplace."
Robert E. Zellner, president and CEO of Citicorp Futures Corp., agreed. "People who are dealing with the credit markets on a large scale almost never look at the prices without looking at futures. Certainly, no one who's dealing with $100 million borrowing or lending agreements, which is common, does it without looking at Eurodollar futures."
CME single-day volume records were set on Friday in Deutsche mark futures options (66,415) and calls on Deutsche mark futures options (39,580). Additional open interest records were set in Eurodollar futures options, which closed at 567,345 positions, Eurodollar futures puts (332,730), total interest-rate products (1,670,719), total interest-rate futures (1,088,961) and total interest-rate futures options (581,758).
/CONTACT: Joseph T. Whelan, 312-930-8537, or Mary Hearn, 312-930-8212, both of CME/ CO: Chicago Mercantile Exchange ST: Illinois IN: FIN SU: KD -- NY085 -- 0940 11/04/91 17:18 EST