Cme Group Inc. · NASDAQ:CME
Cme — Conference Presentation (November 2019)
13 slides from Cme's conference presentation, Nov 12, 2019
Slide 1: LIBOR Fallback Proposal for CME Eurodollar Futures and Options
LIBOR Fallback Proposal for CME Eurodollar Futures and Options November 12th, 2019 Sunil Cutinho Agha Mirza Senior Managing Director and President Managing Director and Global Head, of CME Clearing Interest Rate Products CME GROUP PUBLIC © 2019 CME Group. All rights reserved.
Slide 2: Agenda
Agenda 1 LIBOR Fallback Considerations 2 Eurodollar Futures Fallback Proposal 3 Eurodollar Options Fallback Proposal 4 Fallback Flow Chart - Eurodollar Futures & Options 5 Additional Information CME GROUP PUBLIC © 2019 CME Group. All rights reserved.
Slide 3: Disclaimer
Disclaimer Neither futures trading nor swaps trading are suitable for all investors, and each involves the risk of loss. Swaps trading should only be undertaken by investors who are Eligible Contract Participants (ECPs) within the meaning of Section 1a(18) of the Commodity Exchange Act. Futures and
Slide 4: LIBOR Fallback Considerations
LIBOR Fallback Considerations UK Financial Conduct Authority (FCA), US Federal Reserve Board, and the US Commodity Futures Trading Commission (CFTC) warn of likelihood of discontinuation of LIBOR after 2021. They urge: • rapid adoption of alternative benchmarks (e.g., SOFR in US) • standardization,
Slide 5: LIBOR Fallback Considerations
LIBOR Fallback Considerations At the request of global regulators, ISDA completed several consultations on fallback approaches for OTC Derivatives. ISDA’s recommended framework comprises three chief elements: • Fallback Trigger: Public statement by benchmark administrator (e.g., IBA Ltd for LIBOR) o
Slide 6: Eurodollar Futures Fallback Proposal
Eurodollar Futures Fallback Proposal There is an existing alignment in the underlying interest rate periods of Eurodollar and 3-month SOFR futures: • An expiring Eurodollar (ED) futures contract cash-settles to 3-Month USD LIBOR on the contract expiration date. 3-Month USD LIBOR out of quarterly IMM
Slide 7: Eurodollar Futures Fallback Proposal - Example
Eurodollar Futures Fallback Proposal - Example SR3 Futures ED Futures Spread Adjustment = + Assignment Price Price (aligned with ISDA methodology) Example: Upon occurrence of a fallback trigger, a June 2022 ED futures contract would be assigned to a June 2022 SR3 futures contract, according to a pre
Slide 8: Eurodollar Options Fallback Proposal
Eurodollar Options Fallback Proposal Initial Observation: Positions in options on ED futures could be converted into corresponding options on SR3 futures by amending the original ED option strike prices in accord with the formula on Slide 6. However, this would result in non- standard strike prices
Slide 9: Eurodollar Options Fallback Proposal
Eurodollar Options Fallback Proposal Optional (Opt-In) Conversion of ED Options into Standard Strike SR3 Options In recognition that the terms to option expiry extend as long as 4 years, and in order to aid in reducing two forms of options (SR3 options and the ‘nominal’ ED options), we intend to off
Slide 10: Fallback Flow Chart – Eurodollar Futures & Options
Fallback Flow Chart – Eurodollar Futures & Options Eurodollar Eurodollar Futures & Options Eurodollar liquidity pool remains deep and Future continues to grow Option If and When Potential Trigger Occurs 3-Month At assignment: SR3 Optional: Opt-in SOFR Nominal ED Price = ED Settle + to compression- O
Slide 11: Additional Information
Additional Information Serial Eurodollars Currently SOFR futures that correspond to the Reference period of Serial Eurodollars are not listed. In order to smoothly transition any open interest in Serial Eurodollars at the time of a potential fallback trigger, CME would add SOFR contracts to match ex
Slide 12: Next Steps
Next Steps We are eager to hear your comments and questions. If you wish to speak with us about LIBOR Fallbacks, please contact us at InterestRate@cmegroup.com. Today’s Speakers: Sunil Cutinho Agha Mirza Senior Managing Director and President of CME Clearing Managing Director and Global Head, Intere
Slide 13: CME Group
CME Group