CME Group starts trading new €STR futures in response to EU rate uncertainty

The exchange today started trading a new suite of overnight index futures based on the euro short-term rate (€STR), driven by strong client demand.

CME Group has announced the first day of trading for its latest suite of products: a new set of overnight index futures based on the euro short-term rate. Providing an efficient method of hedging European money market rates, the contracts enable price discovery across the forward curve, IBOR/OIS basis trading, as well as managing cross-country basis spreads and price differentials between EU and US interest rates.

“We have launched €STR contracts to meet increasing customer demand to trade in the overnight benchmark rate of the Euro area,” explained Mark Rogerson, EMEA head of interest rate products at CME Group, speaking to The TRADE. “Increased uncertainty over central bank policy has led to demand for greater granularity which is provided by an overnight rate. At a time when the global adoption of SOFR is nearing completion there also appears to be increasing demand to trade €STR by customers who want to have the same kind of benchmark on multiple legs of transactions. This is particularly true of forward foreign exchange and cross currency traders.

“CME Group has, uniquely, been able to deliver inter-commodity spread functionality between €STR and SOFR to meet this demand. In addition, with our innovative Single Contract Basis Spread futures we provide customers with the most efficient way to trade €STR-Euribor basis in a futurised central limit order book.”

Several banks have already started trading the new products. “The execution strategy that allows simultaneous trading vc SOFR futures provides the hedges we need in our cross-currency and forward foreign exchange businesses,” said Nok To, managing director and head of EMEA STIR trading at JP Morgan.

“Citi is keen to adopt trading in €STR futures at CME Group,” added Akshay Singal, head of EMEA STIR trading at Citi. “Managing basis risk via the innovative single contract basis spread futures directly addresses the needs of the market and our customers.”

The futures will receive automatic margin offsets against existing CME Group interest rate futures.