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NASDAQ OMX brings in Interest Rate Swap product.

Byline: (Staff Writer)

NASDAQ OMX Stockholm, part of The NASDAQ OMX Group, has launched a new futures contract intended to increase the ability to trade against the Swedish swap rate. The product, called the NASDAQ OMX Interest Rate Swap (NOIS), is a futures contract for interest-rate swaps that makes it possible to obtain exposure to the SEK swap curve. Trades are cleared centrally with NASDAQ OMX Stockholm's clearing house in order to reduce counterparty risks and simplify administration.

On the first day of trading May 13th, the NOIS turnover was SEK 850 million/$107.6 million (850 contracts). Trading on the Swedish interest-rate swap market averaged daily about $12 billion during April 2007 according to the Bank for International Settlements. Because both trading and clearing (settlement of claims) occur bilaterally rather than centrally on a regulated marketplace, substantial counterparty risks arise between the parties. NASDAQ claims that NOIS will be centrally cleared at NASDAQ OMX Stockholm in order to reduce such counterparty risks.

"We're extremely pleased to be the first exchange to offer standardised clearing of Swedish interest-rate futures," says Erik Thedeen, President of NASDAQ OMX Stockholm.

NASDAQ OMX Stockholm has signed contracts with a number of market makers, including Danske Bank, Nordea, RBS, SEB, Svenska Handelsbanken and Swedbank that have agreed to maintain the same interbank volumes and spreads as offered by today's interbank market.

NASDAQ claims that customers have also reacted positively to the launch of NOIS. Johan Gyllenhoff, Vattenfall Group Treasurer said, "NOIS will be an important contract for active interest-rate swap players, such as Vattenfall. With a futures contract on the swap rate we see great potential for more efficient management of interest and counterparty risks, as well as the increased capital efficiency that this instrument enables."

Peter Gustafsson, Deputy Head of Fixed Income at Swedbank Robur said, "The NOIS contract is a very welcome addition to ROBUR's management of interest-rate derivatives. It not only enables capital-efficient interest-rate curve and spread trading; it also offers the benefits associated with market-traded derivative contracts."

Erik Ekman, Chairman of the Money Market Council, commented, "We see excellent prospects for high turnover in the new NOIS interest-rate swap contract, and the Money Market Council's members have taken a joint decision to support liquidity in the contract."

How NOIS works

An interest-rate swap is a contract between two parties in which one party commits to pay a fixed flow of interest in return for a floating interest rate, or vice versa. NOIS is a futures contract on the interest swap, in which two parties enter an agreement regarding what the fixed swap rate will be on a future start date with a due date in two, five or ten years. On the due date, the contract is settled in cash against NASDAQ OMX's SEK swap fixing for the period in question.

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Publication:CPI Financial
Date:May 18, 2009
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