Leverage ratio threat to Eurodollar liquidity

CME’s Eurodollar contract is one of the building blocks of the rates market – a gauge of sentiment, a pricing input, a go-to hedge at times of stress. But the leverage ratio could force clearers to hike their prices massively, and users of the contract are starting to worry about the impact on liquidity. Joe Rennison reports

Past its prime? Banks hope for leverage ratio change

From regulated trading to clearing and reporting, post-crisis reform of the swaps world has often been seen as an attempt by markets regulators to make it work more like its listed cousin. Now, in extending swaps-style capital treatment to listed products, prudential regulators seem to be set on returning the favour, by making futures look and feel more like swaps – that is, worn out, overweight and under pressure.

The culprit is the leverage ratio, which requires banks to hold capital equal to