UNITED STATES: CME Group to Launch First-Ever TBA Futures for Mortgage Backed Securities Market

Thursday June 30 2022

On 21^st June 2022, Chicago Mercantile Exchange (CME) Group announced it will expand its suite of long-term interest rate products to offer the first-ever 30-Year Uniform Mortgage-Backed Securities (UMBS) TBA futures contracts on October 3^rd, pending regulatory review.

During the last 4 quarters (Q2 2021-Q1 2022), the UMBS To-Be-Announced (TBA) market had a daily volume of $195 billion, representing 80% of overall TBA volumes per Financial Industry Regulatory Authority (FINRA) Trace and NY Fed data.

The 30-Year UMBS TBA futures contracts will be fulfilled by delivery of TBAs cleared by the Fixed Income Clearing Corporation’s Mortgage-Backed Securities Division, a subsidiary of The Depository Trust & Clearing Corporation (DTCC). The contracts will offer mortgage lenders, issuers, servicers and other participants an exchange-traded and centrally cleared tool for price discovery and risk transfer. The futures will represent 30-year residential mortgages pooled into UMBS products backed by Fannie Mae and Freddie Mac. For each delivery month, futures will be listed for delivery of a small number of specified active mortgage coupon rates 2.0%, 2.5%, 3%, 3.5%, 4%, 4.5% and 5%. The three nearest calendar months will be listed at any given time, beginning with the November 2022 contract.

Available to trade on CME Globex and subject to the rules of Chicago Board of Trade (CBOT), the 30-Year UMBS TBA futures will be cleared by CME Clearing and receive automatic margin offsets against existing interest rate futures upon launch. These contracts will become eligible for portfolio margining against other cleared interest rate swaps and futures after launch.

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