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Chicago Mercantile Exchange & Chicago Board of Trade ("CME Group") will launch monthly and quarterly Secured Overnight Financing Rate ("SOFR") futures on May 7, 2018, pending regulatory review.
In June 2017, the Alternative Reference Rates Committee ("ARRC") recommended SOFR, a Treasury repo index, as an alternative to LIBOR. The CME futures are based on the ARRC's endorsed SOFR index, and will be published daily by the Federal Reserve Bank of New York, with the aid of the U.S. Office of Financial Research, beginning on April 3, 2018.
According to CME Group, the SOFR futures will be traded alongside highly liquid Eurodollar, Fed Fund and Treasury futures to offer enhanced intercommodity spread trading on CME Globex, and offer capital efficiencies through margin offsets of up to 85% against other CME Group futures. CME Group also noted that SOFR is beneficial due to its (i) high correlation with benchmark Eurodollar and Fed Fund futures, (ii) easy spread trading against Eurodollar and Fed Fund futures, (iii) margin efficiencies against Eurodollar, Fed Fund and Treasury futures, and (iv) future eligibility for efficient portfolio margining against CME-cleared swaps.
Following a June 2017 announcement by UK Financial Conduct Authority Chief Executive Andrew Bailey that LIBOR is likely not sustainable past 2021, the derivatives and cash markets began to prepare for LIBOR's demise. The launching of monthly and quarterly SOFR futures is expected to spur the development of a broader range of SOFR-based products.
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