CME Group continues SOFR conversions as demand grows

Following a strong August, CME Group will convert its Eurodollar futures and options open interest into SOFR contracts from 14 April 2023.

CME Group plans to convert its Eurodollars open interest (OI) to SOFR contracts from April 2023, as client demand outpaces that for Eurodollars, with SOFR options also added to the group’s portfolio margining solution.

“SOFR futures and options are now the leading liquidity pool, as open interest has reached approximately 19 million contracts and volume has significantly outpaced Eurodollars,” said Agha Mirza, global head of rates and OTC products at CME Group. “Our proposed conversion date will help our clients complete their operational work as early as possible in the transition process, while closely aligning with the recently published industry timelines for over-the-counter interest rate swaps.”

The proposal doesn’t apply to Eurodollar futures and options expiring before 30 June 2023, which will continue to trade until expiry, and market participants are invited to provide feedback on the plans up until 30 September this year.

The move follows a strong month for CME Group, which reported an increase in average daily volumes (ADV) of 22% to reach 21.2 million contracts, along with record open interest of around 19 million contracts for SOFR futures and options and contracts over August.  

CME Group also plans to add SOFR options to its portfolio margining solution for cleared products from December 2022, subject to regulatory approval – enabling clients to reduce margin requirements by offsetting exposure on cleared swaps versus interest rate futures and options.

The move comes on the back of strong demand for both FX and interest rate contracts amid the current market volatility, with FX ADV up 39% and interest rate ADV up 20% for the past month.

Despite the recent decline in equity prices, CME’s equity index ADV also increased by 51% – but the real winner for August was digital assets, with cryptocurrency daily volumes jumping by a significant 98%.

CME Group’s dealer-to-dealer electronic trading platform for fixed income, Brokertec, also reported a 23% y-o-y increase in average daily volume (ADV) for the month of August, reaching $111 billion and including 16% jump in US Treasuries volume traded. However, despite this growth, CME’s outlook on fixed income is cautious.

“US, UK, and eurozone bond yields rose sharply during the second half of month,” said Erik Norland, senior economist at CME Group. “Central bankers at the Fed, the BoE and the ECB warned that inflation had become more entrenched than previously expected and that rates might have to stay higher for longer and that some economic pain would be inevitable. A sharp decline in equity prices at the end of the month offered little support for bonds.”