May 24, 2021 - CME Group today announced it will launch interest rate futures based on the Bloomberg Short-Term Bank Yield Index (BSBY). These new contracts will be available for trading in Q3, with OTC clearing of BSBY swaps introduced in Q4, pending regulatory review.
"In response to client demand for credit sensitive instruments, we are pleased to introduce BSBY futures to offer both price discovery and risk hedging for the BSBY Index," said Sean Tully, Global Head of Financial and OTC Products at CME Group. "Our launches of BSBY futures in Q3 – and cleared BSBY swaps in Q4 – will complement our existing short-term interest rate futures and Term SOFR index products, providing global market participants with a suite of capital-efficient risk management tools to manage their interest rate exposures going forward."
"We look forward to the upcoming launch of BSBY futures, which will help meet the current client need for credit sensitive rates. As the use of BSBY grows in the U.S. lending markets, these futures will allow market participants to manage their risk," said Umesh Gajria, Global Head of Index Linked Products at Bloomberg. "BSBY futures and BSBY linked cleared swaps will be a strong complement to the SOFR-linked instruments at CME Group."
"The launch of CME Group futures and cleared swaps on the IOSCO-compliant BSBY index will be a promising development for FICC market structure," said Sonali Theisen, Head of FICC E-Trading and Market Structure at Bank of America. "Alongside SOFR, we believe credit sensitive products will play a part in the evolution of the U.S. derivatives market as it prepares for LIBOR cessation."
"Citi has seen strong interest for credit sensitive rate indices to hedge cash and loan exposures from end-users alongside SOFR as the industry transitions away from LIBOR," said Geoffrey Weber, Head of Americas Linear Rates Trading at Citi. "With any OTC derivatives instrument, a robust and liquid futures market is a necessary building block. With that said, we welcome CME Group's latest entry into the alternative reference rates space with their BSBY futures product."
"The introduction of BSBY futures and cleared swaps to the market is an important step forward in the transition away from USD LIBOR," said Thomas Pluta, Global Head of Linear Rates Trading at J.P. Morgan. "We have seen client demand for both credit sensitive rates products and SOFR rates products and having the availability and choice of a variety of indices that suit the needs of our diverse client base will help accelerate this critical transition process."
BSBY has been developed to address the needs of the market by providing a series of credit sensitive reference rates that incorporate bank credit spreads and define a forward term structure. BSBY seeks to measure the average yields at which large global banks access USD senior unsecured marginal wholesale funding. It adheres to the IOSCO Principles, and is a proprietary index calculated daily and published at 8:00 am (EST) on each U.S. business day. BSBY is currently only available for use in the U.S. markets.
CME Group BSBY futures will be financially settled. They will be listed on and subject to the rules of CME.
Contract specifications and further information about the BSBY Bloomberg Short-Term Bank Yield Index Futures can be found on the CME website here.
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