CME Group, a leading derivatives marketplace, has announced a proposed date for the conversion of Eurodollar futures and options to Secured Overnight Financing Rate (SOFR) contracts. Based on initial feedback from clients, the company is proposing April 14, 2023, as the date to convert Eurodollar futures and options open interest into corresponding SOFR contracts. This proposal aligns with CME Group’s previously established fallback plan for the transition from Eurodollar benchmarks. It’s important to note that Eurodollar futures and options contracts expiring before June 30, 2023, are not included in this proposed conversion and will continue to trade until their scheduled expiration dates.
This proposed April 14 conversion date is strategically chosen to facilitate a smooth transition for market participants. According to Agha Mirza, CME Group Global Head of Rates and OTC Products, this timeline is designed to “help our clients complete their operational work as early as possible in the transition process” and is intentionally synchronized with “recently published industry timelines for over-the-counter interest rate swaps.”
The shift towards SOFR contracts is driven by the significant growth and increasing liquidity of the SOFR market. SOFR futures and options have become the leading liquidity pool, demonstrating substantial growth in open interest, which has reached 19 million contracts. Trading volume in SOFR products has also significantly surpassed that of Eurodollars. This growth underscores the market’s increasing preference for SOFR as the benchmark rate. CME Group’s announcement of the April 14 proposed conversion date provides market participants with a clear and practical timeline to transition their remaining Eurodollar positions into the more liquid SOFR market.
August 2022 showcased the robust growth of SOFR markets at CME Group, marked by record-breaking average daily volume and open interest. SOFR futures and options achieved these milestones, further solidifying SOFR’s position in the derivatives landscape. Key statistics from August 2022 highlight this shift:
| CME Group Statistics for August 2022 |
|---|
| Contract Type |
| SOFR Futures |
| SOFR Options |
To assist market participants in the voluntary transition of Eurodollar open interest before the final conversion on April 14, CME Group offers Inter-Commodity Spread (ICS) instruments. These include the SED Spread for futures and the LS Spread for options, which are designed to facilitate a seamless conversion process. These tools are readily available and provide efficient mechanisms for managing the transition.
Looking ahead, CME Group is committed to further enhancing the SOFR market ecosystem. Subject to regulatory approvals, the company plans to integrate SOFR options into its portfolio margining solution for cleared products in December 2022. Portfolio margining is a valuable tool that allows clients to optimize their margin requirements by offsetting exposure between cleared swaps and interest rate futures and options, promoting capital efficiency.
SOFR futures and options have rapidly become deep and consistently liquid markets, attracting broad participation from a diverse range of global financial institutions. These include global banks, hedge funds, asset managers, and principal trading firms, among others. This wide participation underscores the growing acceptance and importance of SOFR in the global financial market.
For more detailed information about SOFR futures and options, please visit the CME Group website at www.cmegroup.com/sofr.
About CME Group
CME Group (www.cmegroup.com) stands as the world’s leading derivatives marketplace. The company empowers clients to trade a comprehensive suite of futures, options, cash, and OTC markets. CME Group facilitates portfolio optimization and data analysis, enabling market participants worldwide to effectively manage risk and capitalize on opportunities. CME Group exchanges offer the widest array of benchmark products across all major asset classes, including interest rates, equity indexes, foreign exchange, energy, agricultural products, and metals. The company provides access to futures and options trading via the CME Globex platform, fixed income trading through BrokerTec, and foreign exchange trading on the EBS platform. CME Group also operates CME Clearing, a premier central counterparty clearing provider.
CME Group brands include CME, Chicago Mercantile Exchange, Globex, E-mini, CBOT, NYMEX, COMEX, BrokerTec, and EBS, among others.
