Matif

The International Futures market of France (MATIF) is a mechanism which exists on several of the money markets of the world. This type of market works on the transactions concerning the monetary credit financial or - good of the Treasury, obligation S, foreign currency, etc - and carries out the same service type as the produce exchanges on raw materials (coffee, sugar, corn, soya, etc) - to make it possible to the holders of credits to minimize the risks that make them run the variations of interest rate and rate of exchange.

The MATIF was opened in Paris the February 15th, 1986. Its bringing together with the futures market of the goods in July 1988, gave rise to the International market of France. Then, it was amalgamated in Paris Bourse SBF SA in 1999, company it even integrated aujord' today in the platform paneuropéenne Euronext of the derived markets sides into Paris. Today the MATIF is managed by Euronext Paris SA which ensures the organization and the good performance of it.

Principles

Any borrower of a credit or a financial liability atfixed, short rate a risk. In practice, those which are interested to cover risks are the banks, the insurance companies, the institutional investors, the industrial and commercial large companies, because not only they are likely to emit or to buy on the market of great quantities of obligations but they also should manage important amounts of liquidities to short, average and long run.

The relation between the rate and the value

Any loan is a source of risk, at the same time for its holder - that which lends - and for his transmitter - that which borrows - because of the variation of interest rates which can intervene over the period of the loan.

If interest rates drop, the transmitter estimates that it could have gotten the same amount with a less interest rate and thus which it loses of the money to have borrowed froma higher rate: for example, a company issues a loan of 100 million euros atfixed rate of 6% over 10 years with Remboursement in fine, but one year after, the rate on the Bond market is not any more but of 5,75%. This variation of 0,25% represents in absolute a considerable sum (250 000 euros per annum in our example, is 2,25 million euros for all the life of the loan).

It is even more serious for a bank, which thanks to the loans that it emits - long resource -, finance appropriations that it grants in the form of short appropriations or atfluctuating rate. For it, a fall of the rates means reduction in the products of employment whereas the cost of its financial resource is constant. This phénomème thus involves an imbalance of its income statement.

The subscriber or holder, saw him the opposite risks compared to the transmitter, if interest rates go up beyond the interest rate to which it subscribed, it can estimate that it could have lent his capital toa higher rate and thus which it loses of the money, and it is all the more serious as its capital is likely to lose of the value. For example, a subscriber bought an obligation of a value of 1.000 euros to 5,5%, refundable in fine in 10 years, thus guaranteeing an income of 55 euros to him per annum, but if the rate goes up to 6%, the market estimates that it could have 60 euros of interest and thus nobody will agree to buy his obligation to him 1.000 euros which reports only 55 euros whereas for the same price one can have of them one which brings back 5 euros moreover. The price of the obligation on the market thus will adapt to interest rate in progress - in our example, the theoretical price of the obligation should thus be around 916,666 euros - that is to say 55/916,666 = 6% of output -, making lose with the initial subscriber part of his capital.

Note: In fact the problem is a little bit more complicated, because the market must take into account the appreciation thus carried out by the new purchaser of the obligation, since in the long term refunding will be made on the personal capital - 1.000 euros in our example. This appreciation will be integrated in the price of the obligation by a Calcul of actuary, expressed in the following way: which is the rising one which, placed at interests capitalized atrate (T) for the length of time (d) remaining to be run before the term, will give in the long term an amount (m). This annual appreciation reported to the value of the title will be expressed by a surplus of interest. This surplus of interest will be thus equal to the amount (m) brought back to the value of the title. In our example an amount of 1.000 euros with interests capitalized to 6% over ten years will give 28,25 euros, that is to say 1,60 euro per annum the price of the obligation will be thus of 916,666 + 1,60 = 918,266 euros, the surplus of interest is thus of 1,60/916,666 = 0,1745%.

The horizon of investment

The horizon of investment is an important concept because it can generate, according to engagement, of the risk in two manners:

: that is to say an insurance company which proposes with its customers a contract of capitalization, with a given output - for example 5,5% - at the end one long period - for example 15 years. At the time of the payments, the company will place the amounts collected atsupposed rates to report to him more than what it was committed pouring in the long term - for example, it subscribes of the obligations to the rate of 6% over 7 years. As the duration of its placements is lower than that of its engagements, one says that the company has a short Position and risks it incurred is that of a fall of the rates, - so to the seven years expiry, the new placements which it will have to carry out have of interest rates even less raised than than it guarantees - for example 5% - the company will have difficulties in keep to its commitments.

: that is to say a bank which proposes a bond SICAV, whose funds are likely to be withdrawn according to the will of the customers. The funds collected by the SICAV are invested in obligations which by definition will have one lifespan higher than that of the entrusted funds, it thus acts of a long Position. The risk is then a rise of the rates which brings to a loss of capital as that is explained in the paragraph on the relation between the rate and the value, and in the event of strong withdrawals of the customers, the SICAV will have to sell out of Stock Exchange part of the wallet and to enter depreciation in capital.

The reduction of the risks

To reduce the risks, the managers of funds developed a certain number of concepts leading to concrete measures of management and especially to seek to compensate for them thanks to the futures markets of financial instruments, as the MATIF which is a market where are sides of the fictitious loans, as called “notional loans” as the operators can buy and sell “in the long term”.

Solutions

To balance its position, i.e. to make coincide duration of its employment and its resources, since the risk results from the imbalance created by a short position or a long position.
To diversify its wallet and to make it less sensitive to the risks by panachant the obligations withfluctuating rate and to indexed obligations. The obligations withfluctuating rates follow the same variations of course as the obligations withfixed rates but to a lesser extent.
To use the swap, mechanism which seeks to release a profit likely to compensate for the loss undergone in the event of supervening of the risk.

Practice

The transactions relate to contracts defined by the commitment to buy or sell, the expiry and the price. Three types of contracts are proposed: on the short rate, on the long rate and the rate of exchange. These three contracts thus make it possible to the operators to be guarded against the fluctuations on the bond market, the money market and that of the currencies.

… continuation under development…

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