INTL FCStone Markets Launches Interest Rate Cap and Floor Options

INTL FCStone Markets (IFM), a Chicago-based subsidiary of INTL FCStone, announced the launch of interest rate cap and floor options on the London Interbank Offered Rate (LIBOR) on Monday.

The new set of products will make for a welcome addition to IFM’s existing over-the-counter Forex Forex Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Read this Term and interest rate trading services. Corporate hedgers, real estate investors, and agribusinesses seem the most likely to take advantage of the firm’s new offering.

According to IFM, the new set of products should enable firms to protect themselves against Volatility Volatility In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, or stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Trad In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, or stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Trad Read this Term on LIBOR. This is because cap and floor options can be used by firms to set rates without damaging their balance sheet.

"Non-bank lenders such as insurance companies and pension funds have increased the need for a direct third-party provider of interest rate hedging tools,” said Eric Donovan, Managing Director of OTC FX and Interest Rates at INTFL FCStone. “We have a view that rates will continue rising, but you have to be prepared for potential volatility. Options allow you to make smarter decisions on market risk, as well as in how you access capital.”

INTL FCStone - Protection against Floating Rates

The new options will bear some similarity to interest rate swaps. They can be purchased for any notional amount and will have multiple settlements based on Libor. Unlike swaps, they will trade with a single premium and strike price.

Demand for such products has risen over the past couple of years, particularly amongst firms with larger exposure to floating rates. This is largely due to the fact that LIBOR has seen a 150-basis point (1.5 percent) increase in that time period.

“Providing straightforward solutions and transparent pricing directly to hedgers eliminates the need for potentially costly intermediaries,” noted Donovan. “Consequently, we anticipate that our OTC interest rates swap dealing business will grow significantly because of these new products."