CFE launching real estate index futures

The following is from CBOE...

CHICAGO, Oct. 12, 2011 /PRNewswire/ -- CBOE Futures Exchange, LLC (CFE) announced today that on or after Thursday, October 27, it plans to launch trading in futures on Radar Logic 28-Day Real Estate indexes, which measure asset values in the U.S. residential housing market.

The first futures contract CFE intends to list will be on Radar Logic's 25-Metropolitan Statistical Area (MSA) Composite Index (ticker symbol: RPXCP), which tracks values of the U.S. residential housing market as a whole. Today CFE filed with the Commodity Futures Trading Commission (CFTC) to offer trading in a number of Radar Logic 28-Day Real Estate Index (RPX) futures and released proposed contract specifications and margin requirements.

"The introduction of futures on the Radar Logic 25-MSA Composite Index will offer real estate lenders, developers, investors and insurers an efficient way to help protect against or seek to take advantage of declining or rising residential values in all types of real estate environments," CBOE Futures Exchange Managing Director Andrew Lowenthal said. "Previously limited to over-the-counter transactions, CFE's listing of this comprehensive real estate index will provide users with the added benefits associated with exchange trading — transparency, price discovery, certainty of execution and protection against counterparty risk through centralized clearing."

Metropolitan areas included in the 25-MSA Composite Index are Atlanta, Boston, Charlotte, Chicago, Cleveland, Columbus, Denver, Detroit, Jacksonville, Las Vegas, Los Angeles, Miami, Minneapolis, Milwaukee, New York, Philadelphia, Phoenix, Sacramento, San Diego, San Francisco, San Jose, Seattle, St. Louis, Tampa and Washington, D.C.

Historical data on the 25-MSA Composite Index spans from January 2000 to the present.

Radar Logic, with which CFE entered into a licensing agreement earlier this year, is a real estate data and analytics company that calculates residential property indexes on the U.S. housing market as a whole, on U.S. geographical regions and on 25 individual U.S. metropolitan areas. Unlike other housing price indicators, Radar Logic's real estate index values are published daily (versus monthly or quarterly) and include all types of home-sale closings — single- and multiple-family homes, new-home sales, existing home sales, and homes that do not conform to federal loan limits. This offers a comprehensive picture of national residential real estate values.

Potential users and applications of the 25-MSA Composite Index futures could include:

  • Mortgage lenders: Seeking protection against diminishing loan-to-value ratios in existing and new lending portfolios.
  • Fixed-income investors: Seeking to replicate real estate returns by combined use of futures and credit instruments.
  • Developers: Seeking to hedge against either rising values of real estate they plan to own or declining real estate values for owned developments under construction.
  • Insurers: Seeking to create a type of "home equity insurance" by protecting lenders from unwanted real estate exposure due to mortgage defaults and property casualty insurers from replacement cost inflation.

For RPXPC product information, see CFE Regulatory Circular CFERG11-029 at http://cfe.cboe.com/aboutcfe/regcirc.aspx. Additional information on RPX can be found at www.cboe.com/RPX. CFE's listing of RPX futures remains subject to regulatory approval.

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