CME plans "holistic suite" with May SOFR option
20th April, 2020|Luke Jeffs
The US exchange group plans to launch on May 4 a option based on the CME one-month SOFR futures contract
CME Group has said it plans to offer a “holistic suite of SOFR products” by launching in early May a one-month options contract based on the US alternative to Libor.
CME plans to launch an options contract based on its one-month SOFR futures product on May 4 “pending completion of all regulatory review periods”.
Agha Mirza, CME Group Global Head of Interest Rate Products, told Global Investor the product will complement the three-month SOFR options contract launched in January this year, and the one-month and three-month SOFR futures contract made available on CME in May 2018.
Mirza said: “CME Group is committed to offering our clients a holistic suite of SOFR products to help manage interest rate risk across the entire yield curve. The addition of one-month SOFR options, to our recently launched three-month SOFR options, will provide clients with additional yield curve granularity, enabling even greater precision and flexibility in their hedging and trading in this evolving interest rate environment.”
He added: “This will also align SOFR options with our underlying one-month and three-month SOFR futures, which averaged 62,000 contracts per day during March.”
CME said over 450 options on three-month SOFR futures contracts had traded since that product's launch on January 6 and there are already open positions in that contract out to June 2021.
As they approach their second anniversary, CME’s one-month and three-month SOFR futures contracts are trading over 60,000 lots a day and have over 600,000 contracts in open interest, the CME said.
The launch marks the latest small step in the gradual adoption of SOFR and derivatives based on the lending rate as the industry works to migrate away from the much-maligned Libor.
The Alternative Reference Rates Committee (ARRC), the US working group, detailed on Friday various implementation milestones for the remainder of this year to enable a smooth migration to SOFR.
