CME Group has announced it will launch monthly and quarterly Secured Overnight Financing Rate (SOFR) futures on May 7, pending regulatory review.

The announcement comes one day after the Federal Reserve Bank of New York said it would start publishing Treasury repo reference rates from April 3.

The futures will be based on the Alternative Reference Rates Committee-endorsed SOFR index, and although correlated with Libor and effective federal funds rates, SOFR, a broad Treasury repo index, is distinct from these rates, CME says.

“We worked extensively with our clients to design SOFR futures, which in addition to our existing suite of interest rate futures, will provide clients with new spread trading opportunities and tools that can be used for investment, risk management and hedging,” says Agha Mirza, CME Group global head of interest rate products.

In November 2016, the New York Fed, in cooperation with the US Treasury Department’s Office of Financial Research (OFR), announced that it was considering publishing three reference rates based on overnight repurchase agreement (repo) transactions collateralised by Treasury securities.

Late last year, following a public comment period, the Federal Reserve Board announced final plans for the production of three rates: the Secured Overnight Financing Rate (SOFR), the Broad General Collateral Rate (BGCR) and the Tri-Party General Collateral Rate (TGCR). The SOFR was identified by the Alternative Reference Rates Committee in June 2017 as its recommended alternative to US dollar Libor for use in certain new dollar derivatives and other financial contracts.

The new reference rates to be published by the Fed reflect the SOFR, the BGCR, and the TGCR and are expected to be published each day at approximately 8:00 a.m. Eastern Time, in addition to statistics summarising the distribution of volumes each day, including the total dollar amount of transactions used to calculate each rate, rounded to the nearest billion, and the volume-weighted 1st, 25th, 75th, and 99th percentiles.

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Colin Lambert

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