The cross-currency (X-CCY) basis is defined as the amount by which the interest rate required to borrow in one currency via an FX swap differs from the cost of directly borrowing the currency.
In theory, any differences in these costs would be arbitraged away by market participants, leading to zero basis. However, extant relative demand or supply for either currency typically leads to continuous material non-zero basis.
Short-dated cross-currency basis can be observed by comparing prices in forward foreign exchange with prices derived from interest rate markets. We have done just that in order to create an index tracking the nearby forward IMM-dated 3-month cross-currency basis for EUR/USD. The index launched on July 27, 2024, under the ticker XEURBI. In February 2025,* we will launch EUR/USD Cross-Currency Basis futures that will cash settle to the index.
Currently, OTC cross-currency markets lack homogeneity due to differences in credit support annexes (CSAs). Transactions can be operationally cumbersome, particularly where counterparties prefer not to exchange the principal on forward-starting deals. Mandatory break clauses can create an additional burden while booking cross-currency transactions via FX swap and IRS combinations, creating unnecessary additional line items.
What are X-CCY futures?
Our EUR/USD Cross-Currency futures are financially (cash) settled to the EUR/USD Cross-Currency Basis Index. Each contract is sized to a value of $25 per basis point. Trading can be executed via blocks and EFRPs with traditional liquidity providers or via the central limit order book on an anonymous all-to-all basis, providing the potential for a new source of liquidity. Pricing is displayed in terms of EUR basis points, consistent with OTC conventions.
With a contract design tailored for improving the existing over-the-counter (OTC) cross-currency basis market, our EUR/USD Cross-Currency Basis futures offer market participants a product to manage their EUR/USD cross-currency basis risk. By trading on our platform, traders can now target the cross-currency basis in a more transparent and cost effective way due to:
- Standardized contracts
- On-screen price transparency
- Anonymous central limit order book (CLOB)
- Traditional bilateral liquidity via blocks and EFRPs
- Counterparty credit risk management via clearing
What is the EUR/USD Cross-Currency Basis Index?
The EUR/USD Cross-Currency Basis Index calculates the basis point (bp) deviation from the forward FX price implied by covered interest rate parity, expressed in terms of a bp deviation from the observed 3-month ESTR rate. This is established by calculating the difference between the next ESTR quarterly IMM interest rate and the implied ESTR interest rate from the next two quarterly EUR/USD FX and SOFR quarterly IMM futures.
Observations of the component prices are taken simultaneously using the recently created 4:00 p.m. London markers for the Three-month SOFR futures (SR3), Three-month ESTR futures (ESR) and EUR/USD FX futures (6E). All of these markets are deeply liquid, transparent and allow for market pricing for the cross-currency basis.
The index is calculated and published by CME Group Benchmark Administration, a registered Benchmark Administrator, authorized and supervised by the UK Financial Conduct Authority (FCA).
For details on the EUR/USD Cross-Currency Basis Index, visit the Index webpage.
Contract specifications
Contract size
$25 X contract-grade Index
Pricing
Price = expected forward value of XEURBI at Final Settlement
Tick size
0.25 Index points (¼ basis point per annum) = $6.25 per contract
Critical dates
The “contract month” naming convention will be determined by the month in which the contract expires. This will also match the SOFR and ESTR contract months used for index calculation.
Last trading day
Trading shall terminate at the close of trading (4pm London) on the Friday preceding the third Wednesday of the contract month.
Final settlement price
The final settlement price shall be equal to the EUR/USD Cross-Currency Basis Index, which is published rounded to the nearest 1/10,000th of a percentage point (0.01bp)
Minimum price increment
The price of a EUR XCCY futures contract trades in increments of 0.25 Index points (¼ bp per annum), allowing for a minimum price fluctuation of $6.25 per contract.
Contract listings
EUR XCCY futures listings are the nearest four March Quarterly contracts (March, June, September, December).
Blocks
100 contract minimum; 15 minute reporting time
Product code
CME Globex: XEU
*Pending regulatory review
All examples in this report are hypothetical interpretations of situations and are used for explanation purposes only. The views in this report reflect solely those of the author and not necessarily those of CME Group or its affiliated institutions. This report and the information herein should not be considered investment advice or the results of actual market experience.
