OTC products, available through INTL FCStone Markets, are designed to deliver benefits similar to exchange-traded futures and options, but can offer customizable terms (e.g. non-standard quantities, strike prices, expiration dates, etc.) that align more closely with hedging needs. Demand for interest rate hedging has grown steadily over the past two years, as the 150-basis point increase in LIBOR is putting increased pressure on balance sheets exposed to floating rates. Introducing more complex interest rate hedging capabilities offers more flexibility to control interest rate exposure on both sides of the market.
Cap and floor options enable corporate hedgers, real estate investors, and agribusinesses to set rates while minimizing and simplifying the impact they have on a balance sheet. Similar to interest rate swaps, these long-term interest rate options can be purchased for any notional amount and will have multiple settlements based on LIBOR. However, unlike swaps which have exposure to both sides of the market, an interest rate option trades with a single premium and strike price. With these new products,
Donovan continued, "Non-bank lenders such as insurance companies and pension funds have increased the need for a direct third-party provider of interest rate hedging tools. We have a view that rates will continue rising, but you have to be prepared for potential volatility. Options allow you to make smarter decisions on market risk, as well as in how you access capital. With more choices than ever when it comes to structuring debt, the ability to use swaps, caps and floors to your advantage can make a major difference in the total cost of funding."
The INTL FCStone Markets division was the first non-bank company registered provisionally as a swap dealer with the
A Fortune 500 company with a nearly 100-year track record, the company focuses on providing products and services within the commodities, securities, foreign exchange and global payments sectors. INTL customers include the producers, processors and end users of virtually every major traded commodity; commercial counter parties; and governmental, nongovernmental and charitable organizations. The company also serves institutional investors, brokers, professional traders, CTA/CPOs, proprietary trading groups, commercial banks and major investment banks. The company is listed on the Nasdaq under the ticker symbol "INTL."
Further information on INTL FCStone is available at www.intlfcstone.com.
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