- 8 Sep 2020
- By CME Group
- Topics: Interest Rates
As the transition to SOFR discounting approaches, here's a full library of resources we've created to help market participants smoothly navigate this process.
- Three-part webinar series: Covering RFR adoption, cash adjustment process, and SOFR auction
- Overview presentation: Summary of CME's end-to-end approach to the discounting transition
- Detailed Methodologies paper: In-depth guide to CME's discounting transition process
- Auction protocol: Overview of CME's SOFR Basis Swap Auction to be held on Monday, October 19
In August, a record 28 firms (7 new) cleared $22.4B in SOFR swaps, the third highest monthly volume since launch. Notional outstanding now exceeds $117B (chart).
In response to client demand, CME Group will implement the following enhancements to Fed Funds futures effective September 21*:
- Listings will be extended from 36 consecutive calendar months (three years) to 60 consecutive months (five years).
- The pricing mechanism on strips will be amended from net-change pricing (i.e., reset at 0 every day) to an average price of legs.
- Three more 12-month strips will be listed as an efficient mechanism for replicating OIS, with liquidity available in the front two 1-year strips (nearest 12 full months and subsequent 12 months).
Effective September 14*:
- A 6.25 basis point strike price interval will be added within the current range of 150 basis points to the four serial and two nearest quarterly expiries for Eurodollar and 3-Month SOFR options.
- Initial expirations will be Oct 2020, Nov 2020, Dec 2020, Jan 2021, Feb 2021, and Mar 2021.
- Mid-Curves will remain unchanged.
Indicative margin calculations suggest clients may be able to realize up to 83% in initial margin savings with this enhancement.
Client and clearing member testing begins October 28.
In the first full month of trading:
- ADV +42% MoM to nearly 6K contracts per day, including a record 13.4K contracts traded at month-end.
- Open interest +43% MoM to nearly 7K contracts.
- Participation expanded to 65+ global participants.
- Relative value trading via Globex-listed curve spreads accounted for 15% of trading volume in Aug.
- 3Y vs. 5Y (TOF) and 2Y vs. 3Y (TYT) curve spreads account for the majority of activity, but 3Y vs. 10Y (TUN) and 3Y vs. Ultra 10Y (TYX) spreads have seen growing activity in recent weeks.
- Avg. book depth grew to 222 lots at the top of book, +18% MoM.
- Bid/ask spreads increasingly trade at the new 1/8 MPI.
CME SOFR futures traded over 42K contracts per day in August, +24% MoM, and the highest level since March:
- Streaming quotes enabled over 4.4K contracts per day in SOFR Packs & Bundles, helping to increase trading activity further out the curve.
- Open interest saw notable growth in deferred contract months:
- SR1U0 +39%
- SR3Z0 +38%
- Contracts in 2021 and beyond +16%
- Large open interest holders in 3-Month SOFR futures hit a new high of 67**.
Data as of August 31, 2020, unless otherwise specified
*Pending regulatory approval
**Source: August 25, 2020 CFTC Commitments of Traders Report
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