CME Group Swap Futures (MAC and Eris) Plan for Transition to SOFR Discounting

CME Group has worked with market participants to develop a plan for transitioning price alignment and discounting for Swap futures from the daily Effective Federal Funds Rate (EFFR) to the Secured Overnight Financing Rates (SOFR).

MAC Swap futures

Since MAC Swap Futures are physically delivered into an OTC Swap position, no exchange-supported adjustments are required to facilitate the transition to SOFR-based discounting:

  • Any contract expiring before the October 2020 OTC discounting transition will deliver into an OTC Swap with EFFR discounted/PA underlying. 
  • Likewise, any contract expiring after the October 2020 OTC discounting transition (Dec 2020 contract listed in June as the first example) will deliver into an OTC Swap with SOFR discounted/PA underlying. 

As a result, please note that the market may begin to price MAC Swap futures assuming SOFR discounting beginning with the December 2020 contract.

Eris Swap futures

Transition date: All Eris Swap futures contracts will continue to trade under EFFR discounting and price alignment through October 16, 2020.  After the discounting transition (beginning trade date October 19, 2020), all Eris Swap futures contracts will be traded under SOFR discounting and price alignment.  CME Group will process a cash adjustment to reverse out any PNL impacts associated with transitioning the discounting rate from EFFR to SOFR. Unlike the discounting transition for OTC Cleared Swaps, there will be no re-hedging exercise for Swap futures positions.

Transition process:

  • After close of business on October 16th, CME Group will conduct a standard end-of-day cycle for all Eris Swap futures positions (both off- and on-the run) utilizing EFFR discounting.
  • As part of the closing cycle on October 16th, CME Group will also calculate the value of all Eris Swap contracts under SOFR discounting.
  • Cash Adjustment: To neutralize the change in value associated with the discounting transition, CME Group will process a cash adjustment that is equal and opposite to the NPV change as of the close of business on October 16th for all accounts at the position level.
    • After the closing cycle on Friday, October 16th, CME group will send a report to Clearing Firms reflecting the amount of the cash adjustment
    • On Monday morning, October 19th (prior to the ITD cycle), the cash adjustments will be processed at a position level as a variation margin correction
  • Beginning, October 19th, all CME Group end-of-day cycle for all Eris Swap futures positions will utilize SOFR discounting and price alignment.

Eris Swap futures cash adjustment example

10-Yr Eris Swap futures (LIYU19) Fed Funds Discounted Price SOFR Discounted Price Contract Value Factor (CVF) Net Position Cash Adjustment ((FF Price - SOFR Price) * CVF) * Net Position
Counterparty A 122.2825 122.2822 $1,000.00 15,350 $4,605.00
Counterparty B 122.2825 122.2822 $1,000.00 (11,600) ($3,480.00)
Counterparty C 122.2825 122.2822 $1,000.00 (3,750) ($1,125.00)

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