As the €STR and SOFR discounting transitions approach, we’ve created three quick educational videos to answer common questions and discuss how CME Group can help you smoothly navigate these events:
- Introduction and Overview: Explore the increasing market adoption of SOFR and review important points about the upcoming €STR & SOFR discounting transitions.
- Operational Processes and Testing: Break down the specifics behind the transition, get guidance on developing a strategy for handling cash adjustments and basis swaps, and explore how to prepare for the transition.
- SOFR Auction Process: Review the re-hedging exercise and get a technical walkthrough of the auction process, including CME Group’s approach and safeguards.
Download the full operational deck for the SOFR & €STR discounting transition.
Video topics include:
- Growth of the SOFR market, as demonstrated by record issuance and use of CME Group cleared derivative products
- How the industry, with Alternative Reference Rate Committee (ARRC) guidance, is working to develop a liquid SOFR market by end of 2021
- To facilitate a smooth transition to €STR and SOFR, how euro and US dollar interest rate swap products will undergo a price alignment and discounting transition in 2020
Video topics include:
- An in-depth look at the cash adjustment and how to reconcile amid the change in discounting rate
- How to develop a strategy to maintain original discounting risk exposure for handling basis swaps for the SOFR transition
- Preparing for the transition, from understanding the discounting risk to engaging with FCMs to ensuring all elections and operational setups are in place
Video topics include:
- Why CME Group will restore market participants back to their approximate EFFR discounting exposures for the SOFR discounting transition
- Choosing whether to hold the basis swaps to incrementally gain exposure to SOFR or to unwind them to immediately transition their discounting risk from EFFR to SOFR
- Exploring CME Group-enacted safeguards, including a maximum loss limit, to protect market participants and ensure the integrity of the auction process
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.
