By: Pej Hamidi
Can someone explain to me how one converts a “swap” into a “future”? That’s pretty cool: A very short-term commitment to a lot of risk, usually overnight, somehow converted into an exchange tradeable future. (Except custom Swaps for hedgies: think John Paulson Short Housing CDS’s; takes huge capital to even think of structuring one).
An obvious regulatory arbitrage trade: NASDAQ confirms they expect a “nine-figure-per-year opportunity” according to Traders Magazine, page 34 January 2010 “Betting on Swaps”. NASDAQ wants to use their purchase of the PHLX and the PBOT to create a customer & dealer driven clearing platform, especially for esoteric, complex products like Swaps and Futures. Let’s hope the dealers come on board and maybe we can start trading SWAPS in small pieces shorting Emerging Market Debt with other debts of developing countries.
Just for now, I would love to put that trade on. Iran is experiencing a Bank run. Remember: Iran pegs to the almighty USD. By the time a bank run starts, the Iranian Revolution has already begun. If the regime lets the Rial actually float (a comic proposition) only the divine knows where it will floor, or if it will even be worth as much as the Iraqi Dinar. How embarrassing.
On the other hand, let’s say they switch to a managed float like China, where they peg to a basket. Iran has built up their reserves in other assets. They just might be able to pull this off. It may also show who these huge buyers in the Gold markets are that are taking delivery of their gold contracts rather than rolling over. If you haven’t noticed, check out how much “taking delivery” vs. “rolling” the contract has changed. Gold Storage is a profitable business and very much in demand.
Lastly, they could throw SDR’s into the fold. Iran does have quite a few. They can link to SDR’s, or include them in a basket, not sure on this. If you don’t know what SDR’s are:
“The SDR is an international reserve asset, created by the IMF in 1969 to supplement its member countries’ official reserves. Its value is based on a basket of four key international currencies, and SDRs can be exchanged for freely usable currencies. With a general SDR allocation that took effect on August 28 and a special allocation on September 9, 2009, the amount of SDRs increased from SDR 21.4 billion to SDR 204.1 billion (currently equivalent to about $324 billion).”
I hope INTERPOL makes a bit of an effort to bring these killers to justice.
