CME Group said SOFR derivatives set a single-day record of 7.56 million futures and options traded, and a record open interest of 35.7 million contracts, on 12 January 2023 as the industry continues to transition away from Libor.

Agha Mirza, global head of rates and OTC products at CME, said in a statement: “Our SOFR futures and options complex continues to grow, and the records in volume and open interest validate that SOFR is the most robust and well-designed U.S. dollar interest rate index available.”

In the first two weeks of January 2023, the average daily volume of SOFR futures was equivalent to 572% of Eurodollar futures ADV, and for SOFR options was equivalent to 1,334% of Eurodollar options ADV.

After the financial crisis in 2008 there were a series of scandals regarding banks manipulating their submissions for setting Libor benchmarks, which led to a lack of confidence and threatened participation in the related markets. As a result, regulators have increased their supervision of benchmarks and moved to risk-free reference rates (RFRs) based on transactions, so they are harder to manipulate and more representative of the market.

Clarus Financial Technology, the derivatives analytics provider, highlighted in a blog that US dollar LIBOR will cease publication on 30 June this year.

In 2022 SOFR adoption increased from 28% to more than half the market, 58%, according to the ISDA-Clarus RFR Adoption Indicator. However, more than $2.5 trillion of new US dollar interest rate swaps were reported to swap data repositories each month in 2022, meaning that at least $62.7 trillion of notional was written which referenced US dollar Libor.

Clarus said that whilst all signs suggest that Libor transition in US dollar markets will be just as smooth as in GBP, JPY and CHF last year, it is worth just pausing and noting how large the US dollar Libor market remained in 2022.

“Will 2023 be the year in which $62 trillion of notional is just no longer traded in markets?” said the blog. “Or will that whole $62 trillion transition into SOFR swaps?”

Can $62Trn really be about to simply disappear? https://t.co/LwsHbEnubl

— Clarus (@clarusft) January 11, 2023

Clarus described putting a number on the impact of USD LIBOR cessation on volumes as “a lottery” as it could range from 33% down to 10% up, using Libor cessation in other currencies as a guide.

“The markets need transparency and they need accurate volume numbers so that market participants can continue to have confidence in markets,” added the blog.

Derivatives volumes

Trading volume for interest rate derivatives and credit derivatives increased in 2022 compared to the previous year according to the latest ISDA SwapsInfo Quarterly Review.

Cleared #IRD transactions represented 74.7% of total IRD traded notional and 76% of total trade count. #Credit derivatives traded notional increased by 50.8% to $14.4 trillion in 2022 vs $9.5 trillion in 2021

— ISDA (@ISDA) January 18, 2023

Total interest rate derivatives traded notional rose 26.7% to $292.8 trillion in 2022 from $231.2 trillion in 2021. The majority, 58.4%, of notional traded on swap execution facilities as did two-thirds, 69.6%, of total trade count.

Credit derivatives traded notional increased 50.8% to $14.4 trillion from $9.5 trillion over the same period. Cleared credit derivatives transactions accounted for nearly all, 83.7%, of total credit derivatives traded notional and 88% of total trade count.