Quick takes: €STR volumes and market share, February 2025
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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: Hi, Ali. How are you doing? 

Mark Bell: Hi, 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, today we're going to be talking about €STR Futures again. The title of the blog is "€STR Volumes and Market Share, February 2025." I just say that the blog doesn't really specifically talk about activity in February so much.

It's more kind of filling in the gaps from when I last wrote about €STR Futures. For people who may have missed it, I think I would highlight two things. One is that we have an ongoing three-way, let's say "battle" for market share between ICE, Eurex and CME. The record ever month that we've seen for €STR Futures volumes was back in September.

That does look a bit like an outlier. It's kind of difficult to get a grasp on exactly what was happening. But ever since my previous blog, I've been meaning to find time to update it. When you're writing a blog and you're updating the data, there is always like a concern from a blog writer's perspective, right?

I put in the effort to look at the data. Is it actually going to be a story here? And what really surprises me with €STR Futures is that on the face of it, it's a really simple question, right? What is the market share of Eurex, ICE and CME? But every single time I write these blogs, there's always something about the data that pulls out a story.

And I don't know if that says more about me or says more about the data, but it is really, really rewarding to be able to keep on writing about these things and uncovering different facets of what's actually happening in the markets. So, for example, if I pull that together, two things, one is that for the first time, really, I would say ICE and Eurex were like neck and neck in terms of volumes traded.

ICE continued to have a lot more open interest than Eurex and ICE actually went over the million contract threshold in open interest for the first time. But what that has done also has reduced the market share of CME. And I have to stress, Clarus have no favorites. We are not siding with any of the three exchanges, but from a CME perspective, we've just done a podcast on their new cross currency basis future that is linked to their CME  €STR Future, and so all of a sudden I feel like I've got some skin in the game now. The last thing I really want to see is for the CME  €STR contract to kind of peter out, especially as since our previous podcast, there have actually been volumes traded in the cross currency basis future now. I feel a little bit torn.

And then of course, the second thing is talking about recent podcasts again. We spoke about the European active account climate. I should really stress all of those numbers I've run so far have only been on interest rate swaps, so that only on EURIBOR in products. The active account requirement will actually also impact  €STR swaps.

I don't think it impacts €STR Futures, but it does impact  EURIBOR futures. So there is still kind of the potential to unpick that and run some more numbers on the active account requirement as well when we're talking about this market share picture and that might have an impact. My gut feeling is that because in swaps, you were talking about five trades. If you talk about five contracts in STIRs, like that is really tiny, really, really tiny. It's just an operational test as opposed to a real test of risk. It will be interesting for me to go back and look into that. And maybe it's more blog worthy than first impressions. Just before I check with Mark if he has any questions, I think it's important to note that February was a really, really impressive month for trading of €STR Futures.

Sixteen percent of total short term interest rate futures were traded against  €STR. That's the largest, let's say market share of  €STR relative to EURIBOR we've ever seen. It came in a month where I wouldn't say there was any role activity looking at the data. It doesn't look like there was any, let's say, "shenanigans," in terms of trying to change market share other than pure organic growth.

And so it does seem to have been a particularly healthy month in terms of trading. So that really makes me quite excited to see March and April data. See if that 16 percent can get towards 20. And then I think we're starting to see more and more traction and more and more movement away from EURIBOR, which is an inherently more complex index to trade.

Mark, that was a quick overview. Haven't really talked about the numbers. Would you have any specific call outs or questions for the blog? 

Mark Bell: Yeah, I think you sort of alluded to it in your commentary now, but a year ago you had a similar blog and the blog then was titled "€STR Futures — Still a Three Way Battle."

But really, it seems that that's no longer the case with a much smaller volume of futures going through the CME. However, you do feel that there might be a rear guard action. Would that be a correct assumption from what you've just said? 

Chris Barnes: It's definitely still a three way battle. I'm going to state that explicitly.

It's definitely still a three way battle. Let's see what drives what. Whether we can get some more volume in CME  €STR Futures, which could drive the cross currency basis future. Whether cross currency basis future is novel enough that it reignites interest in the  €STR Future at CME. Who knows? I firmly believe this will stay as a three-way battle, Mark.

Mark Bell: In saying that, you're sort of alluding to the fact that the other two clearinghouses have also got products with portfolio benefits that they are using to offset the risk on. What are they doing to allow for a more portfolio-based risk approach with the success of their products? 

Chris Barnes: Yeah, I mean, it's a real, real head scratcher, right?

Eurex have all of that volume, all of that risk in German government bond futures, and yet they haven't been able to get that same franchise in STIRs. ICE have done an exceptional job, I think, in terms of protecting those franchises. When you look at Short Sterling, there was a competitor from Curve Global and Cross Margining versus LCH SwapClear.

Swaps first, and then SONIA, of course, and moving from LIBOR to SONIA. ICE continually do a great job of protecting that old life franchise, right? What are we going to see going forward? Really, really difficult to say, as I say, I don't have a good grasp of whether the active account requirement will have a meaningful impact on market share, Eurex obviously have this big push.

But we see time and time and time again, particularly in, in swap space, right? CME have a very, very strong offering of portfolio margining in dollar rates generally, and yet swaps still trade at swap clear. And so it feels to me like whilst yes, it's like a stick that we can hit the CCPs with, margin should be as efficient as possible.

I'm not sure whether it really leads to trading moving around. 

Mark Bell: One final question or really more a statement I think is that, you know, with this increase in €STR Futures volume, and we've spoken on podcasts in the past about  €STR discounting, it should really be for all of those asset managers, pension funds that are listening, time to move to  €STR discounting, if you're not doing it already.

Chris Barnes: Strongly agree. And I would add. Move your funding targets to  €STR plus or minus as well. Stop having funding targets relative to EURIBOR. 

On that note, Ali, I'll hand over to you. 

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

Chris Barnes: That was  "€STR Volumes and Market Share, February 2025." 

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: Thanks, Ali. Looking forward to it. 

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.