Quick Takes: €STR volumes and market share

Ali Curi: Hi everyone, and welcome to ION Markets Quick Takes. I’m Ali Curi, and every week, along with my guests, Amir Khwaja and Chris Barnes, we take a quick dive into the headlines on the Clarus blog. Let’s get started.

Hi, Amir.

Hi, Chris.

Amir Khwaja: Hi, Ali.

Chris Barnes: Hey, Ali. How you doing?

Ali Curi: I’m doing great. Welcome back to Quick Takes.
Chris, let’s start with you. What’s your quick take for this week, which headline from the ClarusFT blog, would you like to discuss?

Chris Barnes: All right. So I’m actually going to try something a little bit new this week. I will talk about the blog called “€STR volumes and market share,” which I’ve just realized having read it out loud, doesn’t actually state that it’s about futures, but it is about the ongoing market share battle for €STR futures.

And rather than talk about what’s in the blog, I’m going to highlight what happened after I published the blog. Actually, I published this blog literally a day before the March 2024 €STR futures rolled. That is how the so called March IMM date. I knew this. I knew that the roll was coming up and I really didn’t think that it would affect the data at all.

We’re trying to get on top of this trend. We’re trying to stay on top of where the market share is. It seemed a timely enough moment to publish it given what had happened in the data already, so I published it. Next day, of course, our newsletter goes out on the day of the IMM roll. And on that day, the data changes, and okay, it’s brilliant to have something that is so transparent and to have something where there’s daily data, but instantly you’ve published a blog and it’s out of sync with the story.

And this is something that does somewhat consistently happen. Clarus always have a decision point to make, do we go back and update the blog, and say, look, the data has changed or do we leave it there? And Amir and I generally have the same policy that these blogs are published under very, very tight timelines. We don’t have time to go back and update our blogs, data is changing. So it’s very, very rare that you will see a Clarus blog with changes, unless we get something completely wrong. This was just bad luck basically. And so I think it’s worth highlighting it from a “behind the blog” perspective, but basically what happened is the day after we published this was that as a result of the March IMM, the open interest of €STR Futures at CME dropped and it dropped a lot. I’m not going to talk about specific figures, because you really need a chart in front of you to put it in perspective. It’s certainly the largest drop in open interest we’ve seen. Now, that’s interesting for a number of reasons, right? And it will take a bit of investigation into the data to see what has happened. Is that open interest that has disappeared? Is that open interest that is moved to a different exchange? What does it mean for the general adoption of €STR Futures as well?

But I thought one of the kind of key things I could highlight without actually showing you a physical chart is just how big the €STR’s futures contract managed to get in March. When we first started writing these blogs, when €STR futures were just launched, which was only like six or seven months ago.

€STR total volumes versus the Euribor futures contract as well were way less than 1%. Already in March of 2024, across all three exchanges, we saw nearly $4 trillion dollars of notional equivalent trade. €STRs make up anywhere between 10 and 15 percent of total volumes now. In a very short period of time, we have seen €STR futures become, let’s say “a real thing.”
It’s a real market with real volumes there. What the March IMM change I think has shown us is that this will continue to be a three way battle and how each of the exchanges respond to the changes in market participant behavior, et cetera, is going to be an ongoing story. And that will play out in the data itself.

Amir, have you got any specific questions on the blog or what was not in the blog?

Amir Khwaja: First, I’ll just point out, your IMM Roll blog is one of our most well read evergreen blogs that you’ve written, yeah? In terms of I think it’s probably one of those mechanics definitions one, right? On IMM Rolls.

So obviously that’s a huge one. I think the dashboard with the API, I think, looks extremely nice. So it’s very easy for you to do that dashboard. Do you want to talk a bit about how easy that is or the work you have to do to create those charts, et cetera?

Chris Barnes: If we tried to do these regular blogs, maybe five or six years ago, before the CCPView API, it would have been a case of saving down maybe six or seven queries, exporting to our CSV, copy and paste to Excel, et cetera.

Now, what I’m able to do using Excel is as a very simple front end is I’ve got those queries stored by our microservices API in Excel itself, and so I can just update the data it’s set up to update weekly. And so this is like one of those nice dashboards that I can just have on my screen all the time.

I don’t expect that we’ll have many clients who are looking at this every day, but for us and for the exchanges involved, it’s just a really, really simple process. You log on, you see it there and the changes in data really, really jump out quickly.

Amir Khwaja: Yeah, thanks, Chris. And I guess I think just for the audience that’s not familiar, so in futures, the volume is all predominantly in the near contract.

So when that rolls or expires, volume rolls to the next contract. That happened on March 20th, and that can really change outstanding interest, right? And the volume. Yeah, on the stage, right? Because all the volumes will switch from, I guess, the March contract to the June contract, as well as the open interest.

Chris Barnes: Yeah, precisely. And when you think about the IMM blog I wrote about managing the risk, a lot of that was written from a swap trader’s perspective. And all of that risk management kind of nuance was written before. We were in an RFR world. And so your risk requirements now as a swaps trader are materially different when there is an IMM role compared to when you were in a term LIBOR world out.

Amir Khwaja: Good point. Yes.

Chris Barnes: That’s not necessarily relevant for Euro swaps because Euro swaps continue to trade against Euribor. €STR’s only about 25 or 30% of total market IMM rolls are still a significant risk management event for swaps traders in Euro swaps, but I should probably on my long list of blogs to do, I should look at the management of RFR risks over an IMM roll as well.

Amir Khwaja: That’d be good. Great. Thanks, Chris.

Chris Barnes: My pleasure!
Ali, that was everything I wanted to cover today, I think.

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

Chris Barnes: That’s a good question. Having just stated it about a minute ago, I’ve forgotten it already.

Amir Khwaja: “Esther volumes and market share.”

Chris Barnes: Thank you, Amir. There you go. I really need to add futures there as well, though.

Ali Curi: Great. That works. Amir Khwaja, Chris Barnes. Thank you both for sharing your Quick Takes.
Let’s do it again next week.

Amir Khwaja: Thanks Ali.

Chris Barnes: Thanks Ali.
Looking forward to it.

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.