CME to launch new €STR and repo-based European Overnight Index futures in Q4

CME front 4 Nov 2020


CME Group today announced plans to launch two European Overnight Index futures based on RepoFunds Rate (RFR) benchmarks and €STR in Q4 2022, subject to regulatory review.


RepoFunds Rate futures will be cash-settled contracts based on RFR benchmarks derived from centrally cleared repo trades executed on BrokerTec and MTS, and €STR futures will be cash-settled to the ECB's short-term rate.


CME will also launch €STR-Euribor and RFR-Euribor single-contract spread futures.   


"Our new European Overnight Index futures will support customers with liquid and capital efficient tools for hedging overnight money market and repo rates in European markets," said Sean Tully, CME Group Global Head of Rates and OTC Products. "In addition to our increasingly liquid SOFR futures that help customers manage interest rate exposure in the U.S., our new European futures will help our customers manage sovereign debt risk in Europe."

CME suggests three potential benefits of the new products (link):


"Futurized €STR liquidity: Outright €STR futures similar in design to 3-month SOFR futures will be complemented by €STR-Euribor spread futures for basis trading.


"Efficient repo exposure: Accurately hedge term repo exposure or manage cash vs. futures basis positions in a balance sheet lite instrument.


"Seamless spread trading: Manage cross currency basis spreads between U.S. and EU money market rates with inter-commodity spreads vs. SOFR futures."


Note that in the background, providers such as Refinitiv and EMMI are developing plans for forward-looking benchmarks based on term €STR - see here