KANSAS CITY, MISSOURI, U.S. — The Kansas City Board of Trade (KCBT) cleared its first cleared-only wheat calendar swaps on Jan. 18. The over-the-counter wheat calendar swaps are cleared through the Kansas City Board of Trading Clearing Corporation.
An over-the-counter wheat calendar swap is a privately negotiated contract between a buyer and seller based on the underlying KCBT hard red winter wheat futures contract. These swaps counterparties then are able to submit such contracts to the KCBT Clearing Corporation for clearing.
Only eligible swaps participants can participate in wheat calendar swaps. All FCM's (including clearing, non-clearing and non-member) must execute a participation agreement that sets forth their obligations with respect to wheat calendar swaps.
The following are benefits of wheat calendar swaps:
- Transfers counter-party risk to a centralized clearing entity.
- Reduces the potential impact of settlement default risk by marking to market on a daily basis.
- Provides market users with the benefit of portfolio margining of over-the-counter and exchange-traded products within an account.