CME Hits SOFR Records as CFTC Advances Libor Exit Plan

CME Group has announced four new peaks in its SOFR suite of products, with open interest growing to over 1.6 million contracts, a single daily and average daily trading volume record, as well as a new high in cleared SOFR swaps notional volume.

The surge in activity comes as the US Commodity Futures Trading Commission’s (CFTC) Market Risk Advisory Committee (MRAC) has named 13 December as the day for the planned switch from Libor to SOFR for newly executed cross currency derivatives.

The CFTC change is part of its “SOFR First” policy, a market best-practice that the MRAC adopted earlier this year that is a four-phase initiative that represents a prioritisation of interdealer trading in SOFR rather than Libor. The second phase of SOFR First, involving the transitioning of cross-currency derivatives, was comprised of two parts – the recommendation that cross-currency swaps referencing USD, CHF, JPY, and GBP utilise risk-free reference rates (RFRs) in each currency instead of Libor as of September 21, 2021; and the addressing of the transition of other currencies at a later date.

This second part is what has been announced for 13 December. CFTC says the recommendation is intended to capture the USD leg of all other cross-currency derivative transactions, regardless of the accompanying non-USD currency leg. Specifically, starting on December 13, inter-dealer brokers are encouraged to change the USD leg of newly-executed cross-currency derivatives from USD Libor to SOFR.

The first and third phases of SOFR First for the transitioning of linear swaps and non-linear derivatives occurred on July 26 and November 8 respectively, the fourth and last phase of SOFR First is forthcoming and will involve exchange-traded derivatives.

CME, meanwhile, continues to benefit from the switch to SOFR, on the last day of November the exchange saw a single daily trading volume record of 520,781 contracts, beating the previous high of 441,449 at the end of October. Additionally, average daily volume for November was 304,314 contracts, up significantly from the 238,000-plus seen in October.

CME cleared SOFR swaps notional volume reached a fourth consecutive monthly record in November, surpassing $124 billion in cleared notional. Notably, CME says SOFR-indexed swaps accounted for a record 32% of its USD swap trades, up from 5% in July.

“These milestones are reflective of the continued adoption and growing demand amongst participants in both listed futures and OTC SOFR markets,” says Agha Mirza, CME Group global head of rates and OTC products. “As we grow closer to key transition dates, we anticipate participants will continue to increase their use of CME SOFR futures, options, and cleared swaps to efficiently manage their interest rate risks.”