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IMM Dates

Dates that standardize the expiry date of any contract. Early usage was in the EuroDollar Futures market. An example makes it clearer.

If you buy a 5 year CDS on Ford on 19 October 2006, the contract will expire on 20 December 2011 and not 19 October 2011. If I buy a 5 year CDS on Ford on 3 November 2006, the contract will still expire on 20th December 2011 and not on November 3rd 2011.

Why? The reason is that Credit markets are highly illiquid (or they were for a substantial period). Without IMM dates, the first contract expires on 19 October 2011 and the second contract will expire on 3 November 2011. Now if you want to unwind the original position on 3 November 2006, after the issue date there would be two different CDS in the market that any potential investor could buy. One that expires on 3 November 2011 and one that expires on 19 October 2011. The latter is an off-the-run contract - which would typically be less preferable by a new client. So, there is a glut of these off-the-run contracts.

By standardizing the expiry dates - an illiquid market is forced to become liquid even if different issue dates are set.

Credit markets now operate using IMM date convention.


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