Market Curiosity: Exploring Markets And Systems

July 18, 2012

Eurodollars – Extending Peter L. Brandt’s: “$144 trillion per year futures market is fixed — right under the nose of the CFTC”

Filed under: Just Watching — Tags: , , , — Jeff Fitzmyers @ 10:39 pm

99.99% don’t know that Eurodollars are U.S.-dollar denominated deposits at foreign banks or foreign branches of American banks. By locating outside of the United States, eurodollars escape regulation by the Federal Reserve Board.

– The Eurodollars futures contract (interest rate, not forex market) has historically been the world’s largest futures contract
– In 2011, Eurodollar futures traded 577 million contracts
– Each contract represents a Eurodollar Time Deposit having a principal value of USD $1,000,000 with a three-month maturity
– The underlying value of the Eurodollar futures contracts traded in 2011 equals about $144 TRILLION (based on an average price of 99.50)
– Unlike most futures markets, the Eurodollars are not settled by delivery, but rather use a cash settlement.
– The cash settlement is based on the Libor rate — a rate that we all now know is bogus and manipulated.

Bottom line is this — Eurodollar futures are a $144 trillion per year market being fixed right under the nose of the CFTC, the same U.S. government regulator that allowed the MF Global and now the PFG grand larcenies to occur… Peter L Brandt

Current open interest is 7,867,261 contracts.

Margin to control 1 contract is only about $450, partly due to low volatility.

So right now the outstanding notional value is around 7.8 trillion FRN’s and is being controlled by (very) roughly 10 billion. (This number could change drastically if eurodollars got a bit volatile.)

For comparison, M2 is supposedly about 10 trillion.

Related: Fix HFT, naked shorting, position limits, margin determination, insider trading, and questionable floats, with a few simple non-arbitrary rules.

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