Eris SOFR: Quarterly Roll & New Contract FAQ
When are the roll dates for Eris SOFR Swap Futures?
Eris SOFR rolls quarterly, with primary roll dates being the Monday through Friday encompassing the second Wednesday of the month (i.e., the week prior to the third Wednesday, which is the effective date of the replicated swap).
See Eris Roll Calendar for specific roll dates.
What is the best way to roll, in the order book or using block trades?
Either way works, but there are advantages and disadvantages to each.
Order Book: In the CME Globex order book, Market Makers stream guaranteed calendar spreads in 1:1 ratio, with most tenors featuring reduced tick sizes (i.e., smaller minimum price increments) compared to the outrights. They offer price discovery and electronic execution of guaranteed spreads.
Block Trades: During the roll, block trades often result in more favorable pricing compared to the order book, and offer the flexibility to trade non-1:1 spreads with guaranteed execution (clients often adjust their position size slightly as they roll). For Eris SOFR, blocks account for well over 50% of calendar spread trading. Blocks are available for spreads where the legs add up to at least 100 contracts, pursuant to CBOT rules.
For calendar spreads, what does buy/sell mean, and how does pricing work?
Buying the calendar spread means buying the near month and selling the deferred month (e.g., buying the Dec/Mar spread = buy Dec & sell Mar).
Spread pricing is near month minus deferred month (e.g., price of -0.100 for a Dec/Mar spreads implies DecPrice – MarPrice = -0.100)
Is it required to roll? What happens if I don’t roll, and choose to hold a position as the contract goes off-the-run?
Rolling Eris SOFR positions is optional, though the majority of open interest holders have chosen to roll historically: In 2023, more than 85% of front month open interest rolled.
Choosing to hold an Eris SOFR position, rather than roll, merely implies taking it “off-the-run.”
An Eris SOFR off-the-run contract:
- Continues to replicate the cash flows of a swap, by accruing SOFR-based floating payments against fixed payments at the predetermined coupon, and paying them through variation margin.
- Continues to have daily settlement prices set by CME Clearing, every trading day through the termination date of the replicated swap (e.g., in 10 years, for a 10y Eris SOFR contract).
- Generally requires less initial margin (performance bond) over time, with market participants receiving IM back from CME Clearing.
- Remains tradable as a futures contract with any other CME Group participant.
- No longer has continuous bids and offers from Market Makers in the order book, but is available for trading as a block trade (subject to the minimum block threshold of 100 contracts across all legs, and other CBOT rules), or in the order book following an all-to-all RFQ that prompts market makers to submit bids and offers.
- Generally involves paying a wider bid/ask spread to exit the position, when compared to an on-the-run position. Historically, market participants report the premium required to exit an off-the-run position is lower than they expected, which we attribute to the desire of market makers to exit positions when clients exit.
- Involves paying a quarterly Maintenance Fee of $1.00 per contract to CME Clearing for off-the-run contracts held as of the quarterly IMM date (third Wednesday of quarterly month). Clearing firms may also charge maintenance fees.
What motivates a firm to roll positions quarterly versus taking them off-the-run?
Rolling Quarterly: Market participants most often roll quarterly (in 2023, more than 85% of front month open interest rolled), motivated by keeping their position in the contracts that have continuous order book prices and are most actively traded, maximizing the value of price discovery and liquidity for exit.
See Eris Roll Calendar for specific roll dates.
Taking Positions Off-the-Run: Participants who choose to take positions off-the-run cite multiple reasons for doing so.
- Matching Duration: Eris SOFR position hedges a specific balance sheet asset or liability, where both the futures position and the asset/liability are shortening with time.
- Hedge Accounting: The hedger has applied Hedge Accounting treatment to the Eris SOFR position, and prefers not to reset this treatment by rolling the future.
- Impending Hedge Liquidation: The hedger plans to liquidate the Eris SOFR position in a short period of time (e.g., a few weeks), and prefers to pay the $1.00 Maintenance Fee rather than pay $1.40 in fees ($0.70 per contract to buy/sell or sell buy; plus the bid/ask spread) to roll the position. For example, a mortgage pipeline hedger may plan to securitize their assets and liquidate their Eris SOFR hedge within a month after a quarterly roll.
During the roll, when does the “new” contract become the most liquid?
The new contracts “go front” or “become the on-the-runs” on the Monday prior to the third Wednesday (the Monday following the primary roll dates). Market makers stream two-way prices in the new contract throughout the roll, typically reaching best width and depth on the Monday when it goes front. See schedule above for 2024 front dates.
How far in advance are new contracts listed and available for trading?
Three months before they go on-the-run, and six months before their effective date. For example, CME Group listed the Sep 2023 contracts in March 2023. The Sep 2023 contracts were front (on the run) in June 2023, and went off the run, (but did not expire), in Sep 2023.
How are coupons set for Eris SOFR? Can they change?
CME Group sets Eris SOFR coupons to correspond with the coupons for SIFMA Market Agreed Coupon (MAC) Swaps, which CME Group also administers. SIFMA sometimes modifies coupons for MAC swaps if the market moves significantly prior to the swap effective date. When that happens, CME Group will nearly always follow suit and modify Eris SOFR coupons, provided the contract has no open interest and sufficient time exists before the roll. CME Group and Eris Innovations send market notices when changes occur.
