CME Group, the preeminent player in the derivatives arena, has made a significant announcement. It plans to enhance its interest rate complex by introducing Mortgage Rate futures in January 2025, provided regulatory approvals are obtained. This move is set to revolutionize the market and offer participants a powerful risk management tool.Enhancing Market Risk Management
Agha Mirza, CME Group's Global Head of Rates and OTC Products, emphasized the importance of this development. "For the very first time, market participants will possess a precise and highly-efficient instrument to manage risk across mortgage pipelines, servicing rights, and securities. As the fixed income market continues to evolve, our new Mortgage Rate futures will empower clients to trade the primary-secondary mortgage spread and achieve unmatched margin offsets with our U.S. Treasury futures, TBA futures, and Eris SOFR swap futures." This innovation will provide greater flexibility and stability in an ever-changing market.The 30-Year Fixed Rate Conforming Optimal Blue Mortgage Market Index (OBMMI), on which the Mortgage Rate futures are based, is designed for IOSCO compliance and tracks real-time rate lock data from over one-third of U.S. residential mortgage originations. This ensures that the contracts are closely tied to the actual market conditions and provide accurate exposure to the latest primary mortgage rates available to borrowers.Optimal Blue's Contribution
Joe Tyrrell, CEO of Optimal Blue, a leading authority on primary market mortgage pricing with approximately 35% of mortgage locks processed through its capital markets platform, expressed pride in contributing their Optimal Blue Mortgage Market Index to CME Group. "This allows originators and owners of mortgage assets to have another valuable tool to hedge risk. It aligns with Optimal Blue's mission to assist lenders and market participants in maximizing profitability on every loan transaction." The integration of this index will enhance the overall risk management capabilities of the market.Trading and Clearing Details
Mortgage Rate futures will be available for trading on CME Globex and listed with the rules of CBOT. They will also be cleared by CME Clearing, ensuring the safety and efficiency of the transactions. In addition to margin offsets against U.S. Treasury futures, shortly after the launch date, these contracts will be eligible for Portfolio Margining with cleared swaps. CME Clearing currently offers more than $20 billion in daily margin efficiencies between interest rate futures, options, cleared swaps, and cash securities. This demonstrates the company's commitment to providing comprehensive and cost-effective clearing services.The introduction of Mortgage Rate futures by CME Group is a major milestone in the derivatives market. It will provide market participants with a new avenue for managing risk and optimizing their portfolios. With its global reach and expertise, CME Group is well-positioned to lead the way in this important development.
