On October 1, 2018, CME Group will launch two futures contracts based on the Sterling Overnight Index Average (SONIA)*. The two contracts are the Quarterly IMM SONIA futures contract (SON) and the MPC SONIA futures contract (MPC).
*pending regulatory approval
SONIA futures contracts join CME Group’s globally recognized suite of Interest Rate products giving global traders and risk managers access to another important benchmark rate.
Quarterly IMM SONIA Futures
The Quarterly IMM SONIA futures contract, CME Globex symbol SON, is similar in construction to CME’s existing 3-month SOFR contract. Like the 3-month SOFR contract, IMM SONIA futures will be backward looking for its interest rate reference.
A business day compounding calculation will occur over the course of the interest rate interval, also referred to as the Reference Quarter. The IMM SONIA contract’s reference quarter is the same as the 3-month SOFR contract.
For example, a December 2018 listed SONIA contract begins its interest rate reference point the third Wednesday of December 2018, extending to the Tuesday prior to the third Wednesday of March 2019 – just like 3-month SOFR futures.
The IMM Sonia futures will trade in IMM index points – just like every other short-term interest rate product.
For example, assume a quoted price December 2018 IMM SONIA futures contract at 99.295 equates to a 0.705% yield in equivalent SONIA rate.
MPC Sonia Futures
The MPC SONIA futures, CME Globex symbol MPC, closely resembles the IMM SONIA futures. The major difference being the interest rate interval date configuration.
While IMM SONIA futures follow the IMM calendar, MPC SONIA futures will be based on actual Bank of England monetary policy committee (MPC) meeting dates, as published by the Bank of England.
For example, assume a November 2018 MPC SONIA contract – the actual day count between the November 1 MPC meeting and the December 20 MPC meeting is 49 days. That contracts’ compounding interest rate interval would be 49 days, or 7 weeks.
The February 2019 MPC contract covers the interval between the February 7, 2019 and the March 21, 2019 MPC meetings. The actual day count for this interval is 42 days, or 6 weeks.
The interval includes the first meeting date up to, but not including the second meeting date – in the interval period. A schedule of MPC meeting dates is published on the Bank of England’s website.
The MPC SONIA futures contract also trades in IMM index points. For example, assume a quoted price December 2018 MPC SONIA futures contract at 99.065 - this equates to a 0.935% yield in equivalent SONIA rate.
Conclusion
Traders will be excited by the prospect of trading SONIA based futures alongside CME Group’s suite of existing U.S. dollar-based interest rate products - because both will clear under the same clearinghouse. Thus, allowing for margin offsets resulting in greater capital efficiency.
Additionally, the SONIA contracts can be used for spreading opportunities against CME SOFR, Eurodollar and Fed Fund futures.
Market participants should consult the product specifications for both the IMM and MPC SONIA futures contracts for more details.
