CME Group, the world’s largest futures exchange, has launched two notable futures contracts in the past nine months. One, bitcoin futures in December, has received massive attention. To rather less fanfare, in April it debuted futures on Sofr, US authorities’ preferred alternative to the Libor interest rate benchmark. Less than five months on, and already the latter is beginning to show signs of strength.
In 85 trading days, the Chicago exchange has had a cumulative notional volume in Sofr futures of $711bn, or 278,000 contracts. There has been more than $105bnin notional open interest on Sofr futures, with more than 6,000 contracts a day traded in August.
Some of that early demand is because household institutions such as Fannie Mae, MetLife and the World Bank have begun issuing debt that uses Sofr, rather than Libor, as its reference rate. By contrast, in 181 days of trading bitcoin futures, cumulative notional volume is $25bn, from 624,000 contracts. There have been about 5,800 contracts traded daily in the third quarter, according to the CME.
Undoubtedly, the collapse in the price of bitcoin has played a part. It was volatile again this week after US market regulators temporarily halted trading in two exchange-traded notes that track cryptocurrencies.
Neither contract can yet challenge CME’s supremacy on the euro-dollar contract, which anticipates the interest rate offered on US dollar-denominated deposits held in European banks. It typically trades more than 2m contracts a day. The market’s switch away from Libor is only in its infancy. Nevertheless, it illustrates how far bitcoin futures have to go to break into the mainstream.