CMC Markets’ institutional arm introduces SONIA Index futures

abdelaziz Fathi

CMC Markets Connect, the institutional business arm of UK’s biggest spread better, has introduced a series of SONIA Index Futures as the benchmark contract to manage Sterling interest rate risk.

As the LIBOR regime came to an end in December 2021, the business is now offering its institutional clients access to trade derivatives on the Sterling Overnight Index Average (SONIA).

UK regulators urged market participants over the last two years to accelerate the shift to the Sonia overnight rate before it ceases issuance of cash products referencing Libor. In addition to the cash price, CMC Markets is currently quoting quarterly expiries through to the end of 2023.

The SONIA index futures replace CMC’s UK Short Sterling contracts. Instead of interbank offered rates, the company notes that overnight SONIA is now fully embedded across sterling markets. Successful CCP conversion processes during December 2021 saw some of the largest single day amendments to financial contracts, with in excess of £13 trillion LIBOR-referencing contracts converted to SONIA.

This shift is expected to boost liquidity in these products, which aided relevant providers in achieving the Working Group’s key milestone of ceasing GBP LIBOR-linked derivatives by the end of 2021. As a result, there are effectively no longer any sterling LIBOR linked cleared derivatives. Further, the UK central bank now estimates that less than 2% of the total sterling LIBOR legacy stock remains and notes that firms have plans to address this residual exposure.

Commenting on the news, Richard Elston, head of institutional at CMC Markets said: “As a business, we’re always committed to the constant evolution of our instrument set, ensuring that we can act as a one stop shop for all our clients. From the start of this year, LIBOR was no longer being considered as the benchmark rate, so it made sense for us to provide a more appropriate product to meet the market need in 2022. This is arguably one of the more significant product additions we have made, especially for the UK market, so far this year we have already grown our tradable universe by almost 1,000 instruments, with this momentum being set to continue.”

London-based trading provider has set ambitious growth targets for their B2B arm of business which CMC expect to achieve by catering to a greater range of institutional client types and their respective trading strategies.

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