Quick Takes: €STR volumes and market share November 2024
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Ali Curi: Hi everyone and welcome to ION Markets Quick Takes, I'm Ali Curi. 

And every week, along with my guests, Chris Barnes and Mark Bell, we take a quick dive into the headlines on the Clarus blog. Let's get started. Hi Chris. Hi Mark. 

Chris Barnes: Hey Ali. How are you doing? 

Mark Bell: Hey Ali. 

Ali Curi: Hello gentlemen. Welcome back to Quick Takes.

Chris, let's start with you. What's your Quick Take for this week? Which headline from the Clarus FT blog would you like to discuss? 

Chris Barnes: All right, this week, we're back on €STR futures. So we're looking at  €STR volumes and market share. The blog series has been running for a while now. The initial intent was to show a beautiful  €STR dashboard I've written, which splits up the market share between ICE, Eurex and CME Group.

Dashboards don't translate really well to our podcasts. So instead of talking about the dashboard, I'm going to give you three numbers, three numbers only. I had some feedback that when I did this for RFR adoption, it was easy to understand. So you've got three numbers that you need to know for €STR futures.

Number one, Eurex has a 52 percent market share by volume. Number two, 67 percent of the open interest sits at ICE. And finally, number three, across all Euro futures, 11 percent of volumes are transacted in €STR. Meaning that 89 percent of volumes are still transacted in EURIBOR. If I talk about the blog a little bit, since I last wrote an €STR blog, half a trillion euros of open interest was added to the futures complex.

Half a trillion euros, 500 billion euros. That's a huge, huge number. So open interest now sits at over 1. 2 trillion euros. That's a proper sized market. You know, we first started blogging on this when there were like a hundred contracts trading, we were like, "Oh, hey, new RFR, we should get excited by this." But really the market share battle that's going on predominantly between Eurex and ICE, I would say is like the primary with CME continuing to trade their existing franchise. It's just a really interesting data story to follow. It's really interesting to look at it every month or so. I will say that I try and keep this blog aside as a relatively straightforward one to write.

But there's always that like little niggly thing with writing a blog like this. Like, has there been any new regulation in Europe that suddenly going to cause a whole wave of liquidity to move on shore? And so I start writing the blog. I look at the data. I see if anything has changed since the last time I wrote it.

And then I'm always like, "Are there any changes in regulations, et cetera?" Cause a lot of, let's say the sheer act of blogging and getting to nearly 500 blogs published now, is that you have to have credibility. People have to understand that what you're writing about is a technical subject.

It does change with time. And that comes with an overhead of staying on top of the topic as well. And so whilst some of these blogs will feel familiar to regular readers, there is always that act behind it of research into what has changed, what is coming up, et cetera. We are seeing this creation of a much bigger market in €STR futures.

And yet so far, we haven't had a, let's say, concerted regulatory impetus that says you have to trade €STR. And so it is really, really impressive to see how this market is growing organically. Obviously we are expecting added regulatory pressures to come. There have been some texts issued regarding what the active account requirement, for example, may look like and what the specific requirements will be, and that's something that we will have to stay on top of throughout 2025.

One thing that did really surprise me is that not this blog, but the previous blog I wrote on €STR futures, we were able to highlight that the first €STR options had traded. Anybody that follows futures data, there's a really mature complex of options that trade in SOFR futures, in EURIBOR futures, in short sterling.

And so it is a hallmark of, let's say a really healthy market when options volumes start trading. So I was expecting to see some more €STR options having been transacted. But so far, as far as I can see in the data, there's still only been one €STR options on the futures traded. I expect that to change, particularly as the underlying market is really growing in a very healthy way.

And so again, that's something that I'll be keeping an eye on for the coming year. I'd just like to highlight really, that I couldn't write this blog without an API. I think whilst people who take in the data are probably flooded with, let's say, exchanges marketing these types of volumes, when you actually go in and look and try and use this data, it's always clunky.

And yeah, it does tell a story and I really, really value when I'm creating pieces like this, that we have an API that makes it so simple and so direct to pull this data that it then allows you to be able to spend the time understanding the data and understanding the market dynamics behind it as well.

Mark, you've looked at a number of these blogs now for rest of futures. Any particular comments for the November one? 

Mark Bell: I think firstly, a few weeks ago we spoke about the RFR adoption and we had three numbers there, 60, 70, 30, as my nephew likes to tell me. The Euro transition was at 30%, but in this blog, the transition is at 11%, so why is it so much lower? 

Chris Barnes: It's a great question. I think for swaps, what you're looking at is kind of a split market in the swaps books are discounted at €STR already. So there's a natural flow there. Interbank flows naturally lean towards  €STR, but you have a lot of end users in swaps who are still benchmarking, for example, funding targets against EURIBOR three months in and even EURIBOR six months.

And so because you've got this consistent client base, which is still trading EURIBOR, you've still got a split in swaps markets. You've got to remember how big the futures market is as well. And so if you look at swaps alone, the RFR adoption will be higher in swaps and futures. 

Mark Bell: Thanks. And then there's the three way competition. Eurex is more volume and ICE is more open interest, but does this just really reflect the portfolio margin benefit that ICE has with the EURIBOR future? 

Chris Barnes: That's a tricky one to answer. From the data that we see, it's really, really hard to say what volumes are trading on spread and which volumes are outright.

I think what the data says is that the open interest is growing really, really strongly at ICE. That suggests because the open interest is growing that they have, let's say end users, right? People that want to have the position, therefore, that kind of natural price interest seems to lie mainly at ICE.

You look at the Eurex piece though, and of course, Eurex have cross margining versus all of the European bond futures, so Schatz, Bund, Bobl. When I was a Euro swaps trader, that's what I mainly traded, was the Eurex bond contracts versus swaps. And so they also have a huge advantage from building up any Euro franchise in terms of leaning on those huge, huge markets.

And so CME obviously have the cross margining versus SOFR as well. I just don't see that the fight for market share will really be a question of cross margining. It's really going to be a question of which exchange can attract that true price interest and create a really healthy market, which has that balance, a very mature franchise where you've got end users, you've got hedge funds, you've got banks, you've got principal trading firms, et cetera.

You've got to have all of those pieces of the puzzle, really. 

Mark Bell: Certainly an interesting use case given the startup of certain clearinghouses or people looking to start up clearinghouses or having done that in the past. But I think that's it for me in terms of questions. 

Chris Barnes: Thanks Mark. I think that's probably all we've got time for as well. I will continue with this series of blogs. I think it's an interesting story. It's a great way of highlighting our data. It's a great way of keeping readers abreast of what's happening in terms of market share. I look forward to sharing more on this topic. Ali, back to you. 

Ali Curi: Thank you, Chris. And please, share with us again the title of your blog post.

Chris Barnes: This is "€STR Volumes and Market Share, November 2024." 

Ali Curi: Great, that works. Chris Barnes, Mark Bell, thank you both for sharing your Quick Takes. Let's do it again next week.

Chris Barnes: Look forward to it, Ali. Thanks. 

Mark Bell: Thanks, Ali. 

Ali Curi: And that's our episode for today. You can read more about these topics on the Clarus blog, and you can follow ION Markets on X and on LinkedIn.

Thank you for joining us.