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Unformatted text preview: Strip and Spread Trading Strategies 30 Day Interbank Cash Rate Futures Interest Rate Products A benchmark product providing new trading opportunities The SFE 30 Day Interbank Cash Rate Futures contract (Cash Rate Futures) provides short term money market users with a benchmark for tracking market expectations on cash rate changes and managing interest rate exposures. Cash Rate Futures are based on the average monthly Interbank Overnight Cash Rate (RBA36 on Reuters and RBA16 on Bloomberg). The introduction of a Cash Rate Futures Strip Trading Facility will further enhance the trading opportunities that can be incorporated with these contracts. The Cash Rate Futures Strip will allow traders to structure inter-month trades of 3, 4, 5 and 6 month strips in one single transaction. Cash Rate Futures provide for a variety of uses: Short-term market participants can use Cash Rate Futures as a benchmark against which other short-term cash products are priced and to track market expectations of cash rate movements via the SFE Target Rate Tracker Fixed income fund managers can use Cash Rate Futures to protect portfolios in cash against adverse shifts in overnight interest rates Bank fixed income desks and balance sheet managers can use Cash Rate Futures as a hedge against their overnight borrowing requirements and to protect exposures in short-term interest rate markets Proprietary traders and hedge fund managers can use Cash Rate Futures in a variety of trading strategies such as spread trading with 90 Day Bank Bill Futures and overseas short-term interest rate contracts e.g. CBOT Fed Fund Futures. This guide reviews price data and correlations that can be undertaken using the Cash Rate Futures Strip and Cash Rate Futures in the following trade strategies: Strip Trading Cash Rate Futures Strip trades Cash Rate Futures Strip spread to 90 Day Bank Bill Futures Spread Trading Butterfly spreads in Cash Rate Futures SFE Cash Rate Futures spread to CBOT Fed Fund Futures Strip Trading in Cash Rate Futures Structuring the Cash Rate Futures Strip Each Cash Rate Futures Strip is structured as a bundle of contract months currently listed in the Cash Rate Futures, where the spot Cash Rate Futures contract month will always be the front month in each Strip. The following table shows how a 3, 4, 5 & 6 Month Strip is structured. The July 2004 contract month will be the front month for all 4 Strips listed on 20 July 2004. Structure of Cash Rate Futures Strips: Strip 3 Month Strip 4 Month Strip 5 Month Strip 6 Month Strip Name of Strip September Cash October Cash November Cash December Cash Rate Futures Strip Rate Futures Strip Rate Futures Strip Rate Futures Strip Cash Rate Futures July, August, July, August, July, August, July, August, contract months September September, October September, October, September, October, included in Strip November November, December The listing of new Strips is aligned to the expiry process in the Cash Rate Futures contracts. The listing of new Strips is aligned to the expiry process in the Cash Rate Futures contracts....
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