CME Group Launches Clearing Service for Mexican F-TIIE Overnight Index Swaps

Rhea-AI Summary

CME Group launches clearing service for Mexican F-TIIE overnight index swaps, clearing over 4.3 billion pesos in notional value. Market participants include Banorte, BBVA, Goldman Sachs, HSBC, J.P. Morgan, Morgan Stanley, and Santander. The transition supports Banco de México's move from TIIE to F-TIIE rate, with positive market feedback.

Insights

Financial Analyst

The introduction of over-the-counter (OTC) Mexican Overnight Funding Rate (F-TIIE) index swaps clearing by CME Group is a significant development for the derivatives market. The clearing of these swaps, with a notional value of over 4.3 billion pesos, marks a substantial step in the financial markets as it supports the transition from the Interbank Equilibrium Interest Rate (TIIE) to the F-TIIE rate. This transition is pivotal as it aligns with global trends towards adopting risk-free rates, enhancing the stability and transparency of financial benchmarks.

For investors and market participants, the availability of cleared F-TIIE OIS offers a way to manage interest rate risk more effectively. The move could potentially lead to increased liquidity and more efficient price discovery in Mexican interest rate products. Moreover, the involvement of prominent financial institutions in the early clearing stages, such as Goldman Sachs and J.P. Morgan, signals strong market support and may encourage further adoption.

From a broader perspective, this initiative by CME Group could stimulate the development of Mexico's derivatives marketplace. The provision of capital efficiencies and a comprehensive hedging solution, including F-TIIE futures alongside SOFR futures and MXN/USD FX futures, offers a more robust framework for managing interest rate exposures. This could attract more participants to the market, thereby increasing volumes and reducing costs for end-users.

Market Research Analyst

The clearing of F-TIIE OIS by CME Group underscores the growing importance of risk-free rates in the global financial landscape. The transition from traditional interbank offered rates to alternative reference rates is a trend that has been observed in several economies, driven by the need for rates that are more reflective of the broader market and less susceptible to manipulation.

For businesses and financial institutions operating in Mexico, this transition could mean adjustments in risk management strategies, pricing of financial products and valuation models. The ability to clear these instruments through a central counterparty like CME Group mitigates counterparty risk and provides operational efficiencies. It is also indicative of Mexico's commitment to align with international financial standards, which could enhance its appeal to foreign investors.

Furthermore, the successful launch and adoption of F-TIIE OIS clearing may serve as a case study for other emerging markets looking to develop their financial infrastructure and transition to risk-free rates. This could have broader implications for financial markets, as it demonstrates the feasibility of such transitions and the role that established marketplaces like CME Group can play in facilitating them.

CHICAGO, Feb. 20, 2024 /PRNewswire/ -- CME Group, the world's leading derivatives marketplace, today announced that nine market participants have cleared over-the-counter (OTC) Mexican Overnight Funding Rate (F-TIIE) index swaps since the company launched its clearing service on February 5. The cleared F-TIIE overnight index swaps (OIS) represent more than 4.3 billion pesos (the equivalent of $250 million) in notional value and support Banco de México's transition from its benchmark Interbank Equilibrium Interest Rate (TIIE) to the F-TIIE rate.

Market participants who have already cleared these swaps through CME Group include Banorte, BBVA, Goldman Sachs, HSBC, J.P. Morgan, Morgan Stanley, and Santander.  

"Our new swaps clearing service provides critical infrastructure for clients navigating the F-TIIE benchmark transition," said Agha Mirza, CME Group Global Head of Rates and OTC Products. "Looking forward, we will continue to work to deliver capital efficiencies to market participants to help advance the development of Mexico's derivatives marketplace."

"Banco de México is fully committed to the development of financial instruments linked to Funding TIIE (F-TIIE)," said Gerardo Garcia, General Director of Central Bank Operations at Banco de México. "In this sense, the launch by CME Group of the OIS contracts linked to F-TIIE is a milestone for market development and undoubtedly speeds up and facilitates the transition towards the prevalent use of this rate as the main reference rate in Mexican pesos."

"The transition to risk-free-rates has picked up pace, and the market's ability to risk manage exposures linked to Banco de México's TIIE de Fondeo Rate is another important step on that journey," said Tony Evangelista, Executive Director, LatAm Trading at J.P. Morgan. "J.P. Morgan is delighted to be one of the first participants to clear F-TIIE OIS instruments at CME Group, and we look forward to the market's continued development."

"The successful launch of F-TIIE OIS clearing by CME Group marks a significant milestone in Mexico's transition to a risk-free rate," said Manuel Meza, Head of Global Markets at BBVA Mexico. "As a commercial bank, we are excited to see continued developments in this transition in order to best serve our customers."

In addition to clearing F-TIIE index swaps, CME Group offers F-TIIE futures, which trade alongside SOFR futures and MXN/USD FX futures, providing a comprehensive hedging solution for the short end of the Mexican interest rate curve.

For more information on clearing F-TIIE index swaps at CME Group, please visit https://www.cmegroup.com/articles/2023/transition-from-28d-tiie-to-tiie-de-fondeo-f-tiie-for-cleared-mxn-interest-rate-swaps.html.

As the world's leading derivatives marketplace, CME Group (www.cmegroup.com) enables clients to trade futures, options, cash and OTC markets, optimize portfolios, and analyze data – empowering market participants worldwide to efficiently manage risk and capture opportunities. CME Group exchanges offer the widest range of global benchmark products across all major asset classes based on interest rates, equity indexes, foreign exchange, energy, agricultural products and metals.  The company offers futures and options on futures trading through the CME Globex platform, fixed income trading via BrokerTec and foreign exchange trading on the EBS platform.  In addition, it operates one of the world's leading central counterparty clearing providers, CME Clearing. 

CME Group, the Globe logo, CME, Chicago Mercantile Exchange, Globex, and E-mini are trademarks of Chicago Mercantile Exchange Inc.  CBOT and Chicago Board of Trade are trademarks of Board of Trade of the City of Chicago, Inc.  NYMEX, New York Mercantile Exchange and ClearPort are trademarks of New York Mercantile Exchange, Inc.  COMEX is a trademark of Commodity Exchange, Inc. BrokerTec is a trademark of BrokerTec Americas LLC and EBS is a trademark of EBS Group LTD. The S&P 500 Index is a product of S&P Dow Jones Indices LLC ("S&P DJI"). "S&P®", "S&P 500®", "SPY®", "SPX®", US 500 and The 500 are trademarks of Standard & Poor's Financial Services LLC; Dow Jones®, DJIA® and Dow Jones Industrial Average are service and/or trademarks of Dow Jones Trademark Holdings LLC. These trademarks have been licensed for use by Chicago Mercantile Exchange Inc. Futures contracts based on the S&P 500 Index are not sponsored, endorsed, marketed, or promoted by S&P DJI, and S&P DJI makes no representation regarding the advisability of investing in such products. All other trademarks are the property of their respective owners.

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SOURCE CME Group

FAQ

What is the significance of CME Group launching a clearing service for Mexican F-TIIE overnight index swaps?

CME Group's clearing service for F-TIIE swaps marks a milestone in Mexico's transition to a risk-free rate, supporting Banco de México's shift from TIIE to F-TIIE.

Which market participants have cleared F-TIIE OIS through CME Group?

Market participants include Banorte, BBVA, Goldman Sachs, HSBC, J.P. Morgan, Morgan Stanley, and Santander.

How much notional value has been cleared through F-TIIE overnight index swaps by CME Group?

Over 4.3 billion pesos (equivalent to $250 million) in notional value has been cleared.

What other financial instruments does CME Group offer in addition to clearing F-TIIE index swaps?

CME Group also offers F-TIIE futures, SOFR futures, and MXN/USD FX futures, providing a comprehensive hedging solution for the short end of the Mexican interest rate curve.

Who is Agha Mirza, and what is his role at CME Group?

Agha Mirza is the Global Head of Rates and OTC Products at CME Group, overseeing the new swaps clearing service for F-TIIE index swaps.