€STR and SOFR Discounting Transitions for Cleared Swaps

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:

  1. Introduction and Overview: Explore the increasing market adoption of SOFR and review important points about the upcoming €STR & SOFR discounting transitions.
  2. 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.
  3. 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

Contact Us

For more information about the €STR and SOFR discounting transitions and how CME Group can help you, please contact a member of our OTC team below.

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