Since its introduction on 7th February 1991 on LIFFE, the Three Month Euro Swiss Franc ("Euroswiss") interest rate futures contract has developed into a highly liquid hedging and trading instrument. The contract is traded in a transparent, central market. Therefore it also serves as a benchmark for users and traders of Swiss Franc money market instruments.
Treasury managers use a comprehensive range of money market instruments (including over-the counter derivatives such as FRA's and IRS'S) and they need an appropriate hedging tool to match those instruments. The Euroswiss contract can be used to cover interest rate risk at the short end of the yield curve and is an efficient and flexible means of hedging the entire range of Euro Swiss Franc denominated money market instruments.
The Euroswiss contract can also be used for "spread trading" between Euro Swiss Franc three-month interest rates and those of other currencies. This opportunity is available only on LIFFE, the one market in the world with three-month interest rate futures for six major currencies.
Under the Basle agreement for the convergence of capital adequacy of international banks, exchange traded interest rate contracts are exempt from capital weighting for counterparty credit risk. Positions may be taken in the LIFFE Euroswiss contract minimizing the constraints on banks' credit limits or balance sheet exposure.