An intercommodity spread (ICS) allows for the simultaneous execution of a buy and sell – or sell and buy – of two different but related futures contracts. The price of the spread is quoted as the price difference between the two contracts.

In recent months, the Eurodollar/3-Month SOFR ICS spread has gained popularity. The link between the contracts has been accepted and understood by the wider market, as is reflected in the price of the spread today.

Following the final cessation of LIBOR at the end of June 2023, outstanding open interest in Eurodollars will fall back to same month contracts in 3-Month SOFR, with a spread adjustment exactly equal to the ISDA fallback spread for 3-Month LIBOR of 26.16 basis points.

As of January 10, a reduced tick increment will be offered on ICS spreads between same month Eurodollar and SOFR contracts with the first listed contract being September 2023.

Available on CME Globex with the contract code, SED, this spread will facilitate the migration of Eurodollar positions into SOFR futures. Buying SED will result in a buy for the SOFR futures and a sell for the Eurodollar futures.

The starting point for the order book will be at 26.16, which is equal to the rounded ISDA fallback spread for 3-Month USD LIBOR. Trading at zero in the spread will result in a trade between Eurodollar and SOFR at a spread of 26.16 basis points. These SED strategies will allow tick granularity of 0.1 basis points.

The SED spread is an efficient, cost effective instrument for position management during LIBOR transition.

Vendor codes

Vendor

Code

Globex

SED

Bloomberg

SEAA<Comdty>

CQG

SED

DTN

@SED

ION

SED

Itiviti

SED

Fidessa

SED

FIS Global

SED

Refinitiv

SED

Vela

SED

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