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Australian swap derivatives

ASX 3 and 10 year interest rate swap futures

Interest rate swaps are one of the most widely traded derivative products in the Australian financial market with over $6 trillion in notional value transacted in 2010. ASX’s interest rate swap futures provide a cost effective and convenient way to gain direct exposure to prices and trade strategies in this market, combined with the important benefits of being standardised, exchange traded and centrally cleared.

Benefits of interest rate swap futures

ASX interest rate swap futures are an ideal product for managing risk exposures in non-government debt instruments and offer significant advantages compared to OTC swap products including:

  • Low counterparty credit risk: being exchange-traded and central counterparty cleared provides for effective reduction of credit risk and the need for bilateral collateralisation agreements.
  • Cost effective: the absence of complex documentation and reduced ongoing administrative costs makes transacting in a futures market more efficient and cost competitive when compared to the OTC swap market.
  • Price transparency: exchange traded markets bring together a potentially larger number of connected users promoting price transparency and reducing the total cost of trade.

3 and 10 year swap futures features

  • Contracts are listed on financial quarter months with two months listed at any one time.
  • Contract unit: A$100,000 swap based on a 6.5% coupon and a term to maturity of three/ten years.
  • Cash settled - ASX 3 and 10 Year Interest Rate Swap Futures are cash settled against the AFMA 10.00am 3 and 10 year swap reference rates.
  • Variable tick value - ASX 3 Year and 10 Year Interest Rate Swap Futures are traded on the basis of their yield with the futures price quoted as 100 minus the yield to maturity expressed in per cent per annum.

International approvals

ASX 3 and 10 year interest rate swap futures are approved for trading by:

  • the US Commodities Futures Trading Commission (CFTC);
  • UK Financial Services Authority (FSA);
  • Monetary Authority of Singapore (MAS);
  • Hong Kong Securities and Futures Commission (SFC Hong Kong).

Trading ASX interest rate swap futures

  • Trading in ASX’s 3 and 10 year interest rate swap futures is conducted ‘on-market’ via ASX’s electronic platform ‘ASX Trade 24’ and ‘off-market’ through ‘exchange for physical’ transactions.
  • Spread trading functionality is available for credit and calendar spreads.
  • Attractive spread concessions are available on calendar spreads as well as inter-commodity spreads for offsetting positions held in the ASX 90 day bank bill futures and ASX 3 year and 10 year treasury bond futures contracts.
  • Pre-negotiated Operating Rules are applicable to ASX 3 and 10 year interest rate swap futures.