In response to customer feedback, beginning with the December 2009 contract, CME Group will reduce the notional coupon of 5-Year, 7-Year, 10-Year and 30-Year Interest Rate Swap futures from 6 percent to 4 percent. The December 2009 contract will be listed on June 15, 2009.

This modification will bring the Swap futures notional coupon into closer proximity to market rates for par swaps. As a result, the Swap futures price levels, price dynamics and yield-to-price relationship will correspond more closely to the OTC market, providing a more effective risk management tool for market participants.

Specifically, a Swap futures contract priced on the basis of a 4 percent notional coupon versus a 6 percent coupon will have:

• A lower market price
• A smaller DV01
• Less convexity

For more details, see the 4% Coupon Conversion FAQ

Four Quarterly Expiries. In addition to the conversion to a 4 percent notional coupon, Swap futures will be listed out to four consecutive months in the March-June-September-December quarterly cycle, a change from the current three quarterly month cycle.

Block Surcharge Waiver Extended. The waiver of the surcharge for Swap futures block trades has been extended through December 31, 2009. This waiver eliminates the $.75/per side surcharge for block trades, as well as the $1.25/per side surcharge for Exchange for Physical (EFP) and Exchange for Risk (EFR) transactions.

This change to the Swap futures notional coupon rate will be implemented as follows:

• June 15, 2009
  • June 2009 contracts expire
  • December 2009, March 2010 and June 2010 contracts are listed with 4 percent notional coupon
  • September 2009 contracts continue to trade based on a 6 percent notional coupon
• September 14, 2009
  • September 2009 contracts expire—the last contracts based on a 6 percent notional coupon
  • December 2009, March 2010, and June 2010 contracts continue to trade
  • September 2010 contracts are listed with 4 percent notional coupon

For Swap futures contracts with 4 percent notional coupons, the final settlement value, measured in price basis points, will be determined as:

5-year: 100 x [ 4/r5 + (1 - 4/r5) x (1 + r5/200)^-10 ]
7-year: 100 x [ 4/r7 + (1 - 4/r7) x (1 + r7/200)^-14 ]
10-year: 100 x [ 4/r10 + (1 - 4/r10) x (1 + r10/200)^-20 ]
30-year: 100 x [ 4/r30 + (1 - 4/r30) x (1 + r30/200)^-60 ]

For your convenience, price-yield tables for Swap futures reflecting the 4 percent notional coupon rate have been added to the current tables for the 6 percent coupon.
Swap Futures 4 Percent Price-Yield Tables

Peter Barker (Peter Barker / 312-930-8554)
Jonathan Kronstein (Jonathan Kronstein / 312-930-3472)
Suzanne Spain (Suzanne Spain / 312-338-2651)

Other Resources:
•  Swap Futures Fact Card