Cme Group Inc. · NASDAQ:CME
Cme — Conference Presentation (October 2017)
20 slides from Cme's conference presentation, Oct 4, 2017
Slide 1: Secured Overnight Funding Rate (SOFR)
Secured Overnight Funding Rate (SOFR) October 4, 2017 Agha Mirza Frederick Sturm Managing Director and Global Head, Executive Director, Financial Research Interest Rate Products and Product Development © 2017 CME Group. All rights reserved.
Slide 2: Agenda
Agenda 1 The ARRC and Recent Developments in Short-Term Interest Rate Benchmarks 2 Secured Overnight Funding Rate (SOFR) as a New Reference Rate 3 SOFR Futures: Design Considerations and Applications © 2017 CME Group. All rights reserved. 2
Slide 3: Alternative Reference Rates Committee
Alternative Reference Rates Committee • The Financial Stability Board (FSB) is an international body that monitors and makes recommendations about the global financial system. In mid-2014, FSB initiated a global effort to review and reform interest rate benchmarks across all jurisdictions, with the
Slide 4: ARRC and Recent Developments in STIR Benchmarks
ARRC and Recent Developments in STIR Benchmarks • Recent events have intensified the focus of our clients on the path forward for CME short-term interest rate products - June 22: After extensive research, ARRC endorses SOFR as US alternative reference rate - July 26: CME announces it will develop an
Slide 5: SOFR, LIBOR, and EFFR
SOFR, LIBOR, and EFFR • The FCA July 27 speech clearly states there is no set end date for LIBOR publication • Given continued reform of LIBOR by IBA Ltd and the essential role of USD LIBOR in $180 trillion* assets, we expect banking industry to maintain support of LIBOR publication beyond 2021 • CM
Slide 6: SOFR – Features and Mechanics
SOFR – Features and Mechanics Secured Overnight Financing Rate (SOFR) - Endorsed to Federal Reserve by ARRC, June 22 1 - Based on overnight repurchase agreement (repo) transactions on US Treasury securities (Treasury repo) Publishers - FRBNY in cooperation with US Office of Financial Research (OFR)
Slide 7: SOFR – Features and Mechanics
SOFR – Features and Mechanics Ingredients 1 - Tri-party Treasury repo trade data collected from Bank of New York Mellon (BNYM) - Data for Treasury repo trades made through FICC’s General Collateral Financing (GCF) repo market, obtained from DTCC Solutions - Data for bilateral Treasury repo transacti
Slide 8: SOFR Daily Volumes
SOFR Daily Volumes Daily trading volumes in underlying markets for EFFR and for SOFR ($blns/day) 1 EFFR SOFR 800 700 600 500 $ Billions per Day 400 300 200 100 0 1 ARRC Presentation Materials - June 16, 2017 © 2017 CME Group. All rights reserved. 8
Slide 9: Comparing SOFR with EFFR
Comparing SOFR with EFFR 1-month moving averages of EFFR and SOFR EFFR 1M Avg SOFR 1M Avg 100 75 Basis Points per Annum 50 25 0 © 2017 CME Group. All rights reserved. 9
Slide 10: Comparing SOFR with EFFR
Comparing SOFR with EFFR Spread between 1-month moving average EFFR minus 1-month moving average SOFR 20 15 10 Basis Points per Annum 5 0 -5 -10 © 2017 CME Group. All rights reserved. 10
Slide 11: SOFR Futures: Design Considerations and Applications
SOFR Futures: Design Considerations and Applications © 2017 CME Group. All rights reserved.
Slide 12: What would make a good SOFR futures contract?
What would make a good SOFR futures contract? Building blocks – Flexibility. Familiarity – Comparability with familiar, established STIR futures products. Term exposures – Reliable indication of market expectations of the future path and future volatility of SOFR. Easy spread-trading against establi
Slide 13: Contract Specifications for 30-Day Federal Funds Futures
Contract Specifications for 30-Day Federal Funds Futures Contract Grade Interest on federal funds having principal value of approximately $5 mln, for one calendar month, at a rate equal to average daily EFFR during contract Delivery Month Price Basis IMM Index 100 points minus average daily EFFR dur
Slide 14: Contract Specifications for Eurodollar Futures
Contract Specifications for Eurodollar Futures Contract Grade Three-month unsecured wholesale Eurodollar bank deposit having principal value of approximately $1 mln, for spot settlement on 3rd Wednesday of contract Delivery Month Price Basis IMM Index 100 points minus the three-month London interban
Slide 15: Execution Cost Efficiency through CME Globex STIR Inter-Commodity Spreads
Execution Cost Efficiency through CME Globex STIR Inter-Commodity Spreads Potential STIR Offering - CME Eurodollar Futures (3 month) Fed Fund Futures Eurodollar Futures - CBOT Fed Funds Futures (1 month) - SOFR Futures (specifications TBD) List of Potential Spreading Needs - Fed Funds Futures vs Eur
Slide 16: Fed Funds vs Eurodollar Inter-Commodity Spreads on CME Globex, 2018 Q1
Fed Funds vs Eurodollar Inter-Commodity Spreads on CME Globex, 2018 Q1 1 Facilitates new trading opportunities. Serves as prototype for spreading futures with different tenors Spread Design - Fed Funds vs Eurodollar ICS: 10:6 ratio achieves DV01-neutrality Expiration Fed Funds Eurodollar Month Leg Q
Slide 17: Fed Funds vs Eurodollar ICS on CME Globex, 2018 Q1
Fed Funds vs Eurodollar ICS on CME Globex, 2018 Q1 1 Serves as both a new unique trading opportunity as well as a prototype for spreading instruments of different tenors Pricing - Spread quoted as the yield difference between the Eurodollar futures contract rate and the Fed Funds Example Trade Struc
Slide 18: Next Steps
Next Steps We will reach out to you just as we did in the creation of Ultra 10-Year Treasury Note futures and in managing the five-year issuance gap in the Treasury Bond futures delivery basket Your input and insights on the design of SOFR futures are very important to us. They will: - Help achieve
Slide 19: Potential drawbacks? Alternative structures?
Next Steps We are eager to hear your comments and questions: Potential drawbacks? Alternative structures? If you wish to speak with us about SOFR derivatives, please contact us at InterestRate@cmegroup.com Today’s Speakers: Agha Mirza Frederick Sturm Managing Director and Global Head, Interest Rate
Slide 20: Disclaimer
Disclaimer “CME Group”, “CME Europe” and “CME Clearing Europe” are brands of CME Group Inc. and its subsidiaries, members of which include Chicago Mercantile Exchange Inc., CME Europe Limited, CME Clearing Europe Limited and CME Marketing Europe Limited. Exchange traded and Over-The-Counter (OTC) de