In today's dynamic and complex financial landscape, navigating the fixed income markets for mortgages and credit can present unique challenges and potential risks.
With interest rates at two-decade highs, record federal debt levels, economic uncertainty, and evolving regulatory requirements, market participants require sophisticated tools and innovative strategies to manage their exposure in fixed income markets, and to achieve their financial goals.
As a global derivatives marketplace, CME Group has expanded its presence in the fixed income space. This expansion has been driven by a number of factors, including the growing investor demand for risk management tools, the ever-increasing popularity of electronic trading, and the company’s desire to further diversify its product offering.
One of the key elements of the fixed income expansion has been the launch of To-Be-Announced (TBA) futures — specifically based on the underlying price of 30-year conforming mortgages. In addition, the firm has also launched T-Bill futures, brought about given the significant amount of short-dated paper that the Treasury is issuing. Recently, CME Group decided it would continue its fixed income expansion by listing credit futures based on Bloomberg’s suite of aggregate bond (Agg) indices, including US corporate and high yield futures.
CME Group will now offer solutions for its growing client base by expanding its repo financing business into mortgages and credit with its BrokerTec Quote platform. As a venue for repo transactions, the company has been actively broadening its repo financing offerings in recent years.
The company believes its expansion into fixed income markets is a significant development for the firm, and for the fixed income industry as a whole. CME Group's track record in the derivatives market arguably puts it in a strong position to become a major player in the fixed income financing space.
BrokerTec Quote
BrokerTec Quote's client-centric model is designed to ensure continuous improvement in the user experience. Through a collaborative approach, BrokerTec works to engage with its clients to identify areas for enhancement. This input drives the development of new features and functionalities, which are then delivered directly to production through monthly releases.
The platform's global reach extends across the US, UK, Europe and Asia, catering to a diverse range of clients, offering near-round-the-clock coverage, operating from 11:00 Tokyo time to 17:15 EST.
Operating for 25 years, BrokerTec has built secure and strong relationships with regulatory authorities. As an integral part of CME Group, BrokerTec also benefits from the cyber infrastructure that safeguards CME Group's futures and options trading and data offerings. The offering aims to support daily trading, as well as helping with customer audits and other insights as required. BrokerTec Quote is able to cater for the diverse needs of both buy and sell side market participants.
With the growth in cyber and ransomware attacks in recent years, CME Group is prioritising business continuity with a secure platform designed to minimise these kinds of disruptions, ensuring uninterrupted service and access to critical information for clients. Additionally, CME Group maintains an in-house development team dedicated to incorporating client feedback into its solutions. This results in an expedited process for building and rolling out new features and enhancements, allowing for quick adaptation to the evolving needs of the market.
BrokerTec works to offer financing market data on European repo, via its European Repo VWAP file, available on Datamine. Through its European dealer-to-dealer (D2D) platform, it offers sell side and active Quote buy side clients, access to financing levels across sovereign repo.
This transparency is designed to enable clients to make informed decisions and optimise their trading strategies. Additionally, BrokerTec delivers prior day activity via dedicated files the next morning, complete with detailed timestamps, allowing firms to validate their best execution and ensure compliance with regulatory requirements.
Expanding fixed income offerings
BrokerTec offers a wider range of fixed income financing through its Quote platform. Clients will be able to manage more of their fixed income financing needs more easily and securely. By matching the buy side and dealers to finance broad baskets of securities, including credit and mortgage-backed securities, financing and risk management will be easier to execute.
Companies are rushing to issue debt in the US corporate bond market, due to low borrowing costs and investor demand. This surge in issuance is driven by the expectation that interest rates will not fall significantly this year, potentially making it advantageous for companies to secure funding now.
BrokerTec Quote provides a solution to manage the full lifecycle of corporate bonds, including securities lending, risk management, roll manager, axe boards, substitutions, and rerates. By automating these processes, it should eliminate manual intervention and help to reduce the risk of errors, saving time and resources in the management of corporate bond portfolios.
BrokerTec offers its Quote service free of charge for the buy side. This applies across its entire offering, simplifying the process for clients by ensuring standard fee structures. By maintaining consistent pricing across products, it provides transparency and predictability for users.
Getting ready for the next phase
The BrokerTec Quote value proposition continues to grow as it moves into fixed income financing. With CME Group's expansion into fixed income risk management and financing, the company can offer clients an enhanced experience. This integration looks to provide a suite of solutions for managing credit and mortgage exposure, allowing clients to navigate market complexities with confidence.
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