CME Group launches options on Euro short-term rate next month

Rick Steves

“Our new €STR options will help clients more precisely manage their risk as expectations around European interest rate decisions continue to shift. This launch is the next step in the development of our robust €STR marketplace and builds on the growing liquidity and participation in our €STR futures.”

CME Group has announced the launch of options on Euro short-term rate (€STR) futures, set for May 20, 2024.

Options on Euro short-term rate (€STR) futures will come as a new tool for clients aiming to fine-tune their risk management strategies amid evolving European interest rate forecasts.

“Expectations around European interest rate decisions continue to shift”

Mark Rogerson, EMEA Head of Interest Rate Products, CME Group, said: “Our new €STR options will help clients more precisely manage their risk as expectations around European interest rate decisions continue to shift. This launch is the next step in the development of our robust €STR marketplace and builds on the growing liquidity and participation in our €STR futures.”

€STR futures were first introduced by CME Group on October 31, 2022, and were offered alongside SOFR futures. Since then, the group has reported a notable 79% increase in order book depth, a 31% narrowing of bid-ask spreads, and the successful management of the largest €STR futures expiration to date, involving over 14,000 contracts.

CME Group’s introduction of €STR options is aimed at providing clients with comprehensive tools to manage risk in European interest rate markets amid ongoing economic uncertainties.

80% of traders use CME for €STR futures

With consistently strong volumes, open interest in €STR futures has continued growing exponentially during 2023, with over 80% of market participants choosing CME Group as their home for European Short-Term Rate futures trading.

Adding options to the growing €STR futures offering will provide clients with the first holistic €STR derivatives solution that allows them to navigate continued economic uncertainty and more accurately manage their risk in European interest rate markets.

In November 2023, CME Group €STR futures reached an average daily volume (ADV) of 17,000 contracts – with a single-day record of 39,836 contracts traded on November 10.

CME’s overnight index futures based on €STR

In 2022, CME Group launched a suite of overnight index futures based on the Euro Short-Term Rate (€STR), available to trade on CME Globex and for submission of clearing via CME ClearPort.

Receiving automatic margin offsets against existing CME Group interest rate futures upon launch, €STR futures provide an efficient way to hedge European money market rates, with contracts including €STR 3-Month futures and €STR 3-Month Single Contract Basis Spread futures, complemented with €STR vs SOFR inter-commodity spreads.

€STR futures enable granular price discovery across the forward curve, IBOR/OIS basis trading, as well as managing cross-country basis spreads and price differentials between the E.U. and U.S. interest rates.

BrokerTec launched European repo as a spread to the €STR

In October 2023, BrokerTec unveiled an extension to its services that allows clients to trade European repo as a spread to the Euro Short-Term Rate (€STR). This move provides clients enhanced flexibility and efficient hedging options in a volatile interest rate landscape.

With this update, BrokerTec’s offering is extended across all European repo markets, excluding Italy and Spain. This addition complements the existing capability to trade French repo against €STR.

This announcement comes on the back of the CME Group’s introduction of €STR futures in 2022. The trading of European repo tied to €STR is available on BrokerTec’s EU Regulated Market, operated by CME Amsterdam B.V. This is a crucial point, especially in a financial landscape where regulatory oversight is intensifying.

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