€STR Discounting & Price Alignment Transition Plan for Cleared EUR Interest Rate Swap Products

CME Group plans to migrate the discounting and price alignment environment for cleared EUR interest rate swap products (IRS) from the euro overnight index average (EONIA) to the euro short-term rate (€STR) consistent with the recommendation set by the European Central Bank (ECB)-organized private sector working group on euro risk free rates.1 Publication of €STR by the ECB began on 2 October 2019 under the reformed methodology where EONIA is calculated as the €STR plus a fixed spread of 8.5 basis points. Given the working group on euro risk-free rates has recommended that publication of EONIA be discontinued on 3 January 2022, we believe that it is important that CME Group should be aligned with broader industry initiatives to efficiently transition discounting and price alignment, which will in turn help grow liquidity in €STR derivatives.

An overview of the proposed discounting and price alignment transition process is set out below:

Scope: All existing Cleared EUR IRS products at CME, comprising:

Fixed/Float IRS Overnight Index Swaps Forward Rate Agreements
Zero Coupon Swaps Basis Swaps  

Timing: We are targeting a transition date of 19 June 2020, which is aligned with the rest of the cleared marketplace and provides participants with adequate advance notice to facilitate an efficient transition.

Process: After close of business (Central Time) on 19 June 2020, CME Clearing will conduct a standard end-of-day valuation cycle, determining settlement variation (variation margin/VM) and cash payments on open positions in EUR IRS products as calculated in the current EONIA-based discounting and price alignment environment (discounting/PA). Upon completion of this initial cycle, CME Clearing will then conduct a special valuation cycle, determining settlement variation and cash payments on those positions as calculated with €STR-based discounting/PA.

Cash Adjustment: To neutralize value transfer attributable to the change in the discounting basis, the special valuation cycle will include a cash adjustment that is equal and opposite to the resultant change in the net present value (NPV) of each position in EUR IRS products. Please note on the day of the discounting switch, CME will use cashflows based on forwards that are bootstrapped assuming EONIA discounting. Effective 22 June 2020, and thereafter, CME Clearing will apply €STR-basis discounting/PA to all cleared EUR IRS products.

Cash Adjustment Example:

  Net Present Value  
Trade Standard Cycle EONIA Discounted Special Cycle €STR Discounted NPV Change Offsetting Adjustment Net Cash Flow
Position 1 €300,000 €311,000 €11,000 (€11,000) €0
Position 2 (€180,000) (€184,000) (€4,000) €4,000 €0
Position 3 €28,000 €29,200 €1,200 (€1,200) €0
Position 4 (€680,000) (€694,000) (€14,000) €14,000 €0
Position 5 €550,000 €562,500 €12,500 (€12,500) €0
Total €18,000 €24,700 €6,700 (€6,700) €0

Contact Us

For comments or questions, please contact our team:


  1. European Central Bank – Report by the working group on euro risk-free rates (August 2019). Available at: https://www.ecb.europa.eu/pub/pdf/other/ecb.wgeurorfr_impacttransitioneoniaeurostrcashderivativesproducts~d917dffb84.en.pdf

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