CME has launched a European inflation futures contract based on the Eurozone Harmonized Index of Consumer Prices ex Tobacco (HICP). This contract complements CME’s existing U.S. inflation futures contract, which began trading in 2004. CME Eurozone HICP futures contracts are scheduled to begin trading on the CME(R) Globex(R) electronic trading platform on Monday, Sept. 19th, 2005. Trading hours will be from 8:00 a.m. to 4:00 p.m. London time; 2:00 a.m. to 10:00 a.m. Chicago.
“With the most diverse line of derivatives products in the world, CME continues to expand its global reach,” said CME Chairman Terry Duffy. “The launch of our new Eurozone HICP futures contract will mark another significant step in our continued efforts to attract more European market users to CME.”
“Our new Eurozone futures product is designed to track European inflation and demonstrates CME’s commitment to developing new products that appeal specifically to European market users,” said CME Chief Executive Officer Craig Donohue. “With this new futures contract, banks, hedge funds, pension funds and other institutional investors will now be able to hedge their exposure to inflation in the 12 European Union member states that have adopted the Euro as their common currency.”
HICP measures the level of prices for market goods and services consumed by households in Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal and Spain. The Eurozone HICP is an aggregate of the member states’ HICPs and is targeted to cover nearly 100 percent of all Eurozone household consumption. Harmonization refers to the fact that the same categories and methodology are adopted for the price index in all 12 countries.
CME HICP futures represent inflation on a notional value of euro 1 million for a period of 12 calendar months. Similar to the pricing of CME Eurodollar futures contracts, CME HICP futures will be quoted as 100 minus the annual inflation rate in the 12-month period preceding the contract month.
“Our new contract fills a crucial gap in this market, which currently lacks short-term, inflation-linked instruments,” said Robin Ross, Managing Director, CME Interest Rate Products. “The contract’s monthly expiration will generate interest from inflation swap desks at major banks as well as asset managers and active traders like hedge funds looking for trading opportunities. An active short-term inflation hedge will allow dealers to free-up their capital to create more structured products of medium and longer term tenures, thus contributing to the further growth of the European inflation derivatives market.”
CME is in the process of finalizing a market maker program and anticipates that it will have several market makers who will make continuous, transparent and competitive markets for this new futures contract. For the six months following the contract launch date, CME will offer a six-month fee waiver for CME Globex and clearing fees to all market participants.