CME’s Sofr futures are alternative to Libor rates

Author: John Crabb | Published: 8 Jun 2018

Chicago-based derivatives and futures exchange CME launched secured overnight financing rate (Sofr) futures last month, as the industry looks to move away from Libor rates and progress with the Alternative Reference Rates Committee (ARRC) transition plan.

"The evolution of a liquid futures market is an important milestone of the ARRC paced transition plan. Clients have indicated that Sofr futures will have immediate investing, risk management, and hedging applications for repo and relative value traders," said Agha Mirza, managing director, interest rate products at CME Group told IFLR.

Over 7,000 CME Sofr futures contracts traded in the first week (listed May 7). There are 20 quarterly and seven monthly contracts. The quarterlies will help provide building blocks for the IRS market, whereas the monthlies offer greater granularity at the front end of the curve especially as the nearest quarterly contract becomes more set through its reference quarter.

The liquidity generated...