The Chicago Board of Trade says it plans to broaden its product offerings with the addition of binary options to its list of short-term interest rate products.
The options will be traded electronically according to the Target Federal Funds Rate.
The board says the contracts are designed to complement its Federal Fund product complex.
Binary options contracts are based on incidents that only have two possible outcomes, with a payoff of either a fixed dollar amount or nothing at all.
“The new CBOT binary options contracts serve as a natural extension of our existing Fed Funds product suite,” says Robert D. Ray, CBOT senior vice president of business development. “The contracts were designed to provide new trading opportunities for institutional customers, including short-term funding dealer desks, hedge funds and other parties seeking to manage or acquire short-term interest rate exposure. Market participants have expressed a desire for target rate exposure.”