Erm, are you guys forgetting smth? The future of the reference rates for BOTH of the legs of these wondrous spreads is uncertain. If the various regulators and committees have their way, by 2021 there will only be one rate to rule them all. Obviously, it's all complicated, but this joy and excitement might be, sadly, short-lived. Still, I applaud the CME for finally doing something like this. There are certain really pesky technical issues with the way LOIS basis is currently traded (not cash, as this ain't a TED spread, but rather two cleared OTC derivative contracts) and this should hopefully fix them (mostly, issues related to convexity, as well as daycount and compounding conventions). To be sure, LIBOR-OIS basis is VERY different to treasury asset swap spreads, so Mav is incorrect, cash doesn't dominate this mkt. LOIS and other unsecured term basis mkts are reasonably large and they all trade, at least for now. Why don't they do LIBOR/GC spread futures instead? At least, they will have a future (pun intended).
What's your prediction about the Bitcoin contract ? I don't think the FF-GE contract will necessarily fail per se in the sense that there's already volume and open interest there. It's a consumer package. It's a nice pretty new label. And it will make it easier to trade. I make no predictions about volume though. It's a good idea on its' face IMO.
On the prop side it did marty. I know 3 firms in Chicago that did 90% of their trading on the cash side of this spread because that is where the edge was.
Yes, the invoice spreads and the like trade, vs LIBOR and OIS both, Mav, but it's not the same spread. Not even close. They're two distinct mkts with their own dynamics. Trust me on this, pls, I am still staring at this sh1t all day long.
I think bitcoin contract has a chance, though I think they should have made it physically settled (feels that something like bitcoin should have an active EFP market). This has low chances of success because it’s a liquid OTC product that’s well established and has little interest to non-institutional traders. Historically, whenever exchanges try to introduce a product like that they fail.
EFP for Bitcoin would be a magnet for money laundering. Physically settled futures would have made that quite convenient - and as you allude to would have made that futures contract quite appealing. Historically, futures exchanges have an atrociously bad record for successful contract introductions. Just shit.
Actually, hold on a sec... @bone are you saying that this will be a new spread contract with its own spec? Or will this just be a new market on the exchange where I can more readily and efficiently trade the spread between the standard FF and GE contracts? If it's the latter, I can tell you right now that it's a total waste of time and, IMHO, I can almost guarantee that it will fail miserably.
Marty, I will attend the Webinar on November 28 and report back here. Great question and I have not seen the contract specs.