Leveraged loans are extended to highly indebted companies with sub-investment grade credit profiles. These loans are syndicated by commercial banks and are used by private equity firms to fund leveraged buyouts (LBOs), acquisitions or dividend recapitalizations. Because of the elevated default risk, leveraged loans carry much higher floating interest rates than standard corporate loans and are almost always secured by borrower collateral.

The U.S. leveraged loan market has grown substantially in recent years, with the par amount of outstanding loans rising from $1.23 trillion at the end of 2018 to $1.54 trillion by the end of June 2026 – outpacing that of the U.S. high-yield corporate bond market, which expanded from $1.24 trillion to $1.52 trillion over the same period (Figure 1).

Several key characteristics that define the leveraged loan market:

• Floating interest rates: Leveraged loans typically have floating interest rates, often tied to a floating-rate benchmark such as CME Term SOFR Rates, which means that they do not carry duration, unlike fixed-rate high-yield bonds.
• Senior secured status: These loans are typically senior secured debt, placing them higher in the capital structure than unsecured high-yield bonds. This seniority ranking has historically resulted in higher recovery rates in the event of a default, although a lack of other covenant protections for these loans may erode this advantage.
• Institutional demand: The growth in demand for collateralized loan obligations (CLOs) has created a steady and dominant stream of institutional demand for leveraged loans, which are packaged into these securities.
• Private equity activity: Private equity sponsors frequently use the leveraged loan market for financing leveraged buyouts, refinancings and dividend recapitalizations, valuing its flexibility and speed of execution over the public bond issuance process.

In contrast to corporate bonds, leveraged loans are not classified as securities and do not trade publicly. Instead, they are traded between broker-dealers and institutional investors in an over-the-counter (OTC) market. Like corporate bonds, the leveraged loan market has also experienced an increase in electronic trading, which occurs through centralized electronic platforms such as Octaura and Versano.

Our new futures contract will be based on the S&P UBS USD Liquid Leveraged Loan Index, which is designed to provide a tradable proxy for the broader leveraged loan market.

Key features and methodology:

• Focus on liquidity: The index is a subset of the broader S&P UBS Leveraged Loan Index, targeting the 100 most liquid and tradable loan facilities to ensure the index is replicable and suitable for a derivatives contract.
• Selection criteria: To be included, loans must be fully funded term loans denominated in USD with a minimum facility size of $500 million and at least one year to maturity at issuance. The index includes both sub-investment-grade and unrated loans.^[1]
• Liquidity scoring: The selection process uses daily liquidity scores from S&P Global Market Intelligence's Evaluated Bond Pricing Service (EVB). These scores are a broad measure of liquidity, summarizing each loan across metrics including the number of dealers providing runs, the frequency of runs, average size and average bid-offer spread.
• Rebalancing: The index undergoes a monthly rebalancing process to ensure it continues to represent the most liquid segment of the market. There is also weekly rebalancing to reinvest cash earned from intra-month redemption payments.
• High correlation: Despite its smaller number of constituents, the S&P UBS USD Liquid Leveraged Loan Index is highly correlated with the broader leveraged loan market, making it an effective benchmark (Figure 1).^[2] The outperformance of the broader index likely reflects embedded illiquidity premia due to its less liquid nature.

The leveraged loan market has long been described as having a hedging vacuum due to the absence of a broad-based, liquid credit default swap (CDX) index, unlike the high-yield bond market. Market participants currently manage their leveraged loan exposure using total return swaps (TRS) and exchange-traded funds (ETFs) tied to leveraged loan indices. In 2025, volume traded in standardized TRS tied to the IBXXLLTR Index was $39.11 billion while $112.2 billion was traded in the BKLN and SRLN ETFs. In H1 2026, IBXXLLTR TRS traded $19.9 billion, while the BKLN and SRLN ETFs traded $65 billion.

While TRS on loan indices have become the dominant tool for managing exposure, as OTC instruments they are relatively inaccessible and less capital efficient than listed derivatives. Due to the bilateral nature of trading, TRS requires the negotiation of ISDA agreements with counterparties. In addition, TRS are subject to uncleared margin rules (UMR), where initial margin tends to be significantly higher than for centrally cleared derivatives of a similar risk profile.

ETFs have also risen to prominence as a tool for managing leveraged loan exposure. However, ETFs are funded instruments and are less capital efficient than derivative alternatives. In addition, shorting ETFs involves high borrow fees, potential difficulty in sourcing shares to borrow and recall risk.

Our S&P UBS USD Liquid Leveraged Loan Index futures contract is a cash-settled contract that provides a standardized, exchange-traded instrument for market participants to hedge their exposure or gain efficient access to the leveraged loan market.

The LVE futures contract is designed to directly address the shortcomings of existing hedging tools by offering superior capital efficiency and operational simplicity.

As a centrally cleared futures product, these futures will not be subject to UMR faced by TRS traders. In addition, traders will be able to obtain greater leverage than possible with ETFs. CME Clearing allows for margin offsets against other Credit futures, Treasury futures and Equity Index futures, further enhancing capital efficiency.

Crucially, there is no CDX index for the leveraged loan market. LVE futures are uniquely positioned to fill this gap, providing the first standardized, exchange-traded tool for managing risk.

There are a number of use cases for market participants, particularly for banks and asset managers, specifically CLO managers. Banks underwrite leveraged loan origination, extend warehouse financing to CLO managers and provide secondary market liquidity, all of which create exposures that futures can be used to hedge.

Asset managers, including CLO managers, can use the futures to quickly and efficiently establish broad exposure to the leveraged loans market while waiting for leveraged loans trades to settle. CLO managers can also short futures during the ramp-up period to hedge against a decline in loan prices and protect the economics of a new CLO deal. Managers can also use the futures as a portfolio overlay to manage their exposure to broad market risk while maintaining positions in prized, high-conviction leveraged loan positions.

The U.S. leveraged loan market has grown significantly, yet it has long suffered from a hedging vacuum due to the lack of a liquid derivatives market tied to a broad-based credit index. To fill this critical gap, we are launching S&P UBS USD Liquid Leveraged Loan Index futures, which offer a vastly more capital-efficient solution to manage risk and navigate the complexities of this important and growing sector of credit markets

^{[1]  Credit quality is assessed using an average of Moody’s and S&P credit ratings. As of June 30, 2026, the index consisted of 68% B-rated loans, 28% BB rated loans, and 4% CCC rated loans.
[2] Between 2024-H1 and 2026-H1, there was a 93% correlation between daily price returns of the S&P UBS USD Liquid Leveraged Loan Index (Bloomberg ticker: IBXXLLTR Index) and the broader S&P UBS Leveraged Loan Index (Bloomberg ticker: CSLLLTOT Index).}