CME Group Introduces Innovative Mortgage Rate Futures Trading

Exciting New Offering from CME Group

CME Group, recognized as the world's leading derivatives marketplace, has announced a significant expansion in its interest rate complex with the introduction of Mortgage Rate futures. This game-changing product is set to enter the market in January 2025, subject to regulatory review.

Mortgage Rate Futures: A First in the Market

The upcoming futures contracts will be based on the Optimal Blue Mortgage Market Index, which reflects the latest primary mortgage rates accessible to borrowers. This innovative approach enables market participants to efficiently manage risk associated with mortgage pipelines, servicing rights, and mortgage-backed securities.

A Game-Changer for Market Participants

Agha Mirza, CME Group's Global Head of Rates and OTC Products, highlighted the importance of these contracts, stating, "For the first time ever, market participants will have a precise and highly-efficient tool for managing risk across mortgage pipelines, servicing rights, and securities." This will empower clients to trade the primary-secondary mortgage spread.

Strategic Partnership with Optimal Blue

Joe Tyrrell, CEO of Optimal Blue, expressed excitement about their collaboration with CME Group, which aligns with Optimal Blue's mission to assist lenders in maximizing profitability on every loan transaction. The partnership enables the use of the Optimal Blue Mortgage Market Index to provide a reliable hedging tool for mortgage origination and asset ownership.

Features of Mortgage Rate Futures Contracts

The Mortgage Rate futures contracts are cash-settled and represent the 30-Year Fixed Rate Conforming Optimal Blue Mortgage Market Index (OBMMI). This index is known for its IOSCO compliance and tracks real-time rate lock data from over one-third of U.S. residential mortgage originations, ensuring accuracy and relevance.

Market Trading and Clearing Structure

Available for trading on the CME Globex platform, these futures will be governed by the rules of the Chicago Board of Trade (CBOT) and cleared through CME Clearing. Notably, these contracts will be eligible for portfolio margining with cleared swaps shortly after their launch, providing significant margin offsets through CME Clearing’s extensive capabilities, which currently deliver over $20 billion in daily margin efficiencies.

Empowering Clients Worldwide

CME Group aims to enhance the trading experience of its clients by broadening the range of products available to them. With this addition, market participants can efficiently manage risk while optimizing their portfolios at a global scale. The new Mortgage Rate futures complement the existing offerings of futures and options in numerous asset classes, from interest rates to agricultural products.

A Leader in the Derivatives Market

CME Group continues to lead the way in providing innovative trading solutions. Their vast array of products across different sectors, including futures and options trading via the CME Globex platform, positions the company as a central figure in managing financial risk and capitalizing on market opportunities.

Frequently Asked Questions

What are Mortgage Rate Futures?

Mortgage Rate Futures are cash-settled contracts that provide market participants with direct exposure to the prevailing primary mortgage rates.

When will Mortgage Rate Futures be available for trading?

The new contracts are expected to be available for trading in January 2025, pending regulatory approval.

How do Mortgage Rate Futures benefit traders?

These futures allow traders to manage risk associated with mortgage pipelines and servicing rights, and provide margin offsets against U.S. Treasury futures and other instruments.

Who is Optimal Blue?

Optimal Blue is a leading technology platform that processes a significant share of mortgage locks in the market, providing critical data and analytics for mortgage pricing.

What is CME Group's role in the derivatives market?

CME Group operates as a major derivatives marketplace where clients can trade futures, options, and other financial instruments, helping them manage risk and seize trading opportunities across global markets.

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