Commodity Futures Trading Commission ♦ Office of Public Affairs ♦ 202-418-5080 

Commodity Futures Trading Commission

Office of Public Affairs

Three Lafayette Centre

1155 21st Street, NW

Washington, DC 20581

www.cftc.gov

December 16, 2021

“SOFR First” User Guide for Exchange-Traded Derivatives Transactions

Executive Summary 

Pursuant to the Market Risk Advisory Committee’s (MRAC) approval of the SOFR First Initiative1 at 

the MRAC meeting on July 13, 2021, the MRAC Subcommittee on Interest Rate Benchmark Reform 

(Subcommittee) outlines best practices for market participants to consider vis-à-vis transitioning new 

LIBOR-based exchange-traded derivatives activity to SOFR activity in the near term.

All market participants are encouraged to ensure operational capability to transact in SOFR 

exchange-traded derivatives as soon as possible, and it would be a best practice for all market 

participants to replace use of LIBOR with SOFR for new contracts, including exchange-traded 

derivatives, after end-2021. Eurodollar futures and options contracts are LIBOR-based contracts, 

and while they include strong fallback language, market participants should consider the risks of a 

potential decline in liquidity for LIBOR instruments following the year-end supervisory deadline. 

Accordingly, market participants are encouraged to consider voluntary conversions of LIBOR risk to 

SOFR risk at this time and in advance of USD LIBOR’s cessation on June 30, 2023. Because there 

is no identifiable “interdealer” market for exchange-traded LIBOR instruments, the Subcommittee

could not determine a specific date prior to end-2021 on which dealers should transition exchangetraded interdealer derivatives activity from LIBOR to SOFR, and instead encourages all market 

participants to adopt the best practice of replacing use of LIBOR with SOFR in new contracts after

end-2021. 

Background

The Commodity Futures Trading Commission (CFTC) established the Interest Rate Benchmark 

Reform Subcommittee under the Market Risk Advisory Committee (MRAC) in 2018. The 

Subcommittee’s mandate is to provide reports and recommendations to the MRAC regarding ongoing 

efforts to transition U.S. dollar derivatives and related contracts to a risk-free reference rate—the 

Secured Overnight Financing Rate (SOFR)—and the impact of this transition on the derivatives 

markets. The Subcommittee reports directly to the MRAC and does not provide reports and/or 

recommendations directly to the CFTC. 

1 The “SOFR First” Transition Initiative was approved on July 13, 2021 by the Market Risk Advisory Committee (MRAC). 

The views, analyses, and conclusions expressed herein do not necessarily reflect the views of the Commodity Futures 

Trading Commission or its staff. Reference to any products, services, websites, organizations, or enterprises, or the use 

of any, organization, trade, firm, or corporation name is for informational purposes only and does not constitute 

endorsement, recommendation, or favoring by the U.S. Government.
Commodity Futures Trading Commission ♦ Office of Public Affairs ♦ 202-418-5080 

In July 2021, the MRAC approved a Subcommittee proposal for a series of best practice 

recommendations entitled “SOFR First”. These recommendations represent a prioritization of trading 

in SOFR rather than USD LIBOR for particular market segments and products, which is designed to 

help market participants decrease reliance on USD LIBOR in light of US banking supervisory 

guidance that such activity should cease as soon as practicable and in any event by December 31, 

20212,3,4. The SOFR First recommendations include four distinct phases targeted at changing trading 

behavior of certain market participants. As designed, the four phases were to occur in sequential 

order targeting the following USD interest rate derivative products: linear swaps, cross-currency 

swaps, non-linear derivatives and exchange-traded derivatives. The first three phases of SOFR First 

have already occurred, with a focus on the interdealer market. The dates selected by the 

Subcommittee for SOFR First implementation were July 26 for linear swaps, September 21 for crosscurrency swaps (and additional cross-currency swaps on December 13), and November 8 for nonlinear derivatives. 

Following implementation of the first three phases of SOFR First, market participants have noted 

improved liquidity and trading conditions for impacted SOFR-based interest rate derivatives. The 

Federal Reserve’s November 2021 Financial Stability Report noted that in the interdealer market for 

linear swaps, SOFR risk traded as a percentage of total swap activity was de minimis prior to the 

linear swaps SOFR First date on July 26; in the days following the implementation date of the 

recommendation, such SOFR activity was 60%-100% of total interdealer swap transactions and has 

remained in that range since. As a result, the share of SOFR trades in the overall swap market has 

increased as well.

 

2 US banking supervisory guidance is directed at banks supervised by the Federal Reserve, the Federal Deposit 

Insurance Corporation or the Office of the Comptroller of the Currency. See the “Statement on LIBOR Transition” from 

November 30, 2020 (link) for more information.

3 US supervisory guidance notes that there may be limited circumstances when it would be appropriate for a bank to enter 

into new USD LIBOR contracts after December 31, 2021, such as: (i) transactions executed for purposes of required 

participation in a central counterparty auction procedure in the case of a member default, including transactions to hedge 

the resulting USD LIBOR exposure; (ii) market making in support of client activity related to USD LIBOR transactions 

executed before January 1, 2022; (iii) transactions that reduce or hedge the bank's or any client of the bank's USD LIBOR 

exposure on contracts entered into before January 1, 2022; and (iv) novations of USD LIBOR transactions executed 

before January 1, 2022.

4 The SOFR First best practices recommend replacing the use of LIBOR with SOFR in new contracts, and are not 

intended to recommend the replacement of indices other than LIBOR. 
Commodity Futures Trading Commission ♦ Office of Public Affairs ♦ 202-418-5080 

Source: Financial Stability Report (November 2021); Board of Governors of the Federal Reserve 

System 

Exchange-Traded Products

The initial phases of SOFR First applied to the interdealer market only. The rationale for this 

approach was twofold: 1.) to develop momentum in interdealer markets for SOFR derivatives liquidity 

such that end-users who prefer the most efficient trade execution may be economically incentivized to 

transact in SOFR, and 2.) to assist dealers (who are often associated with supervised banks) to

prepare for US banking supervisory guidance to cease entering into new contracts that use USD 

LIBOR as a reference rate as soon as practicable and in any event by December 31, 2021. While this 

approach worked well for linear swaps, cross-currency swaps and non-linear derivatives, it is 

challenged when considering exchange-traded derivatives. Exchange infrastructure facilitates 

participant’s direct trading with one another, and as a result, there is no identifiable “interdealer” 

market and dealers have a relatively smaller share of exchange-based market activity. This differs 

from over-the-counter (OTC) products, where dealers are typically the main providers of liquidity and 

there are clearer separations between interdealer and dealer-to-customer trading venues. The 

Eurodollar market, the largest exchange-traded LIBOR derivatives market, is also a highly diverse 

market composed of several different types of participants including banks, asset managers, hedge 

funds, proprietary trading firms and others (pension funds, insurance providers, mortgage providers 

and servicers, commercial entities and sovereigns). With such broad participation in this market, it is 

important to note that many firms that transact in Eurodollar futures and options are typically not 

directly subject to the same supervisory oversight as US regulated banks.

For this reason, the Subcommittee, with the MRAC’s approval, has published this User Guide for 

exchange-traded derivatives to promote understanding of the following four statements: 
Commodity Futures Trading Commission ♦ Office of Public Affairs ♦ 202-418-5080 

1. Eurodollar futures and options are LIBOR contracts; 

2. SOFR futures trading volumes are growing rapidly, and SOFR futures exposures are larger

than market participants realize, given the construction of LIBOR fallback language embedded

in all Eurodollar futures contracts;

3. Liquidity for LIBOR contracts could decline after end-2021;

4. CME has created products to allow market participants to transfer risk from Eurodollar futures 

to SOFR futures in an efficient manner in advance of USD LIBOR’s cessation on June 30,

2023.

Statement #1: Eurodollar futures and options are LIBOR contracts

According to the CME Rulebook Chapter 452, the final settlement price of an expiring contract shall 

be 100.0000 minus the three-month U.S. dollar ICE LIBOR wholesale funding rate (“rate”) for the 

second London bank business day immediately preceding the third Wednesday of the contract’s 

named month of delivery. Such rate shall be as determined, and as first published, by ICE 

Benchmark Administration Limited. 

Since Eurodollar futures rely on continued publication of USD ICE LIBOR for valuation and 

settlement, they are clearly LIBOR-based contracts. Other exchange-traded products, like Eurodollar 

options, include the same dependencies on USD ICE LIBOR, and thus are also LIBOR-based

contracts. As market participants, including banks and non-bank entities, consider the types of 

transactions that would create safety and soundness risks after end-2021, they should be cognizant 

of the potential risks posed by such exchange-traded LIBOR contracts.

Statement #2: SOFR futures volumes are growing, and exposures are bigger than market 

participants realize

Since the launch of SOFR futures in May 2018, the volumes traded and number of counterparties 

trading these products have grown materially. In fact, average daily trading volume in November 2021 

reached 300k, up 251% year over year. Open interest peaked on November 30, reaching a record 

1.6 million contracts, up 136% year over year, and making SOFR futures among the fastest growing 

products in CME Group’s 170+ year history. Additionally, there are over 700 firms (including global 

banks, hedge funds, asset managers, proprietary trading firms and others) that transact in SOFR 

futures. The firms that transact in SOFR futures account for over 93% of Eurodollar futures volumes 

today (Source: CME). 

Effective March 29th, 2021, CME adopted SOFR-based fallbacks which are designed to convert (in 

June 2023) CME Eurodollar contracts and Cleared Swaps into the corresponding SOFR contracts 

using the spread for 3-month LIBOR fallbacks in ISDA documentation now fixed at 26.161 bps. Thus, 

for any Eurodollar contract maturing after June 2023, there is a clear and transparent mechanism by 

which these contracts will be valued and settled as CME 3-Month SOFR-based futures contracts. 

Price action in the market closely reflects this future conversion to SOFR, with longer dated 

Eurodollar futures contracts consistently priced very close to the fallback spread of 26.161 bps to 

related 3-Month SOFR futures contracts. Therefore, in thinking about the state of SOFR futures 

contract exposures, Eurodollar futures and options with expiries beyond June 2023, which account for 

about 38% of the entire Eurodollar and SOFR futures complex, already have embedded SOFR 

exposures (referred to as ‘SOFR-linked’ futures contracts) (Source: CME). That said, Eurodollar 

futures and options remain LIBOR contracts and as such could see a decline in liquidity in advance of 

cessation, posing risk to market participants who rely on the liquidity of the market to adjust their 
Commodity Futures Trading Commission ♦ Office of Public Affairs ♦ 202-418-5080 

positions. Market participants with such exposures are encouraged to consider the most effective 

means of managing any such existing exposures over time given that liquidity in LIBOR markets, like 

Eurodollar futures and options, could decline. To avoid these risks, the MRAC recommends that all 

market participants adopt the best practice of replacing use of LIBOR with SOFR for new contracts, 

including exchange-traded derivatives, after end-2021. 

Source: CME Group; Numbers may not add to 100% due to rounding

Statement #3: Liquidity for LIBOR contracts may decline after end-2021

In many markets where supervised banks are liquidity providers, it is reasonable to expect that the 

ease with which market participants trade LIBOR products may decline after 2021. As a result, the 

US banking supervisory guidance may affect most markets directly and indirectly. This could

potentially result in greater transaction costs and lower market activity after 2021 and through 

LIBOR’s cessation date in June 2023. The subcommittee notes that this potential liquidity 

deterioration may affect the broader rates trading environment, to the extent market participants 

further bifurcate trading between LIBOR and SOFR futures products. Market participants are 

encouraged to consider risk mitigation strategies, including voluntary conversion of LIBOR-based 

positions to SOFR-based positions where possible. By adhering to the best practices herein 

concerning operational capability to transact SOFR products and replacing use of LIBOR with SOFR 

for new contracts, including exchange-traded derivatives, after end-2021, market participants will be 

well-equipped to manage decreasing liquidity for LIBOR products as they transition their business to 

viable alternatives like SOFR in the near term.

Statement #4: CME has created products to allow market participants to efficiently transfer 

risk from Eurodollar futures to SOFR futures

US banking supervisory guidance calls on banks to cease entering into new contracts that use USD 

LIBOR as a reference rate as soon as practicable and in any event by December 31, 2021. Even so, 

some legacy Eurodollar futures and options exposures will exist and may need to be risk-managed in 

a manner consistent with that supervisory guidance. While Eurodollar futures and options already 

include SOFR-based fallback language, it is a market best practice to engage in voluntary transfer of 

LIBOR-based risk to SOFR-based risk where practicable. CME offers inter-commodity spread (ICS) 

products between Eurodollar futures and SOFR futures as an efficient tool for relative value trading 

and basis hedging, and to allow seamless risk transfer between the benchmark rates. Trading of such 

ICS products saw record volumes in October 2021. In order to further facilitate voluntary conversion

activity, beginning January 10, 20225, CME Group will permit new reduced-tick SOFR futuresEurodollar futures ICS trading. Such reduced-tick ICS products will reduce friction for participants 

moving positions from Eurodollar futures into 3-month SOFR futures by offering the functionality to 

trade at or very close to the fallback spread for 3-month USD Libor in ISDA documentation. Market 

 

5 Date subject to regulatory review
Commodity Futures Trading Commission ♦ Office of Public Affairs ♦ 202-418-5080 

participants will be able to trade in 0.1 bps increments around the fallback spread (e.g., -0.2, -0.1, 0, 

0.1, 0.2 bps, etc.). Such ICS contracts will be available for contract months beginning with September

2023, which is the first Eurodollar future maturity occurring after USD LIBOR cessation. Each spread 

trade will simultaneously execute a buy (sell) in 3-month SOFR futures vs. a sell (buy) in Eurodollar 

futures at a spread equal to 26.16 bps plus the traded price. Additionally, because the relationship 

between Eurodollar futures and SOFR futures is known and stable for contract months beyond the 

end of June 30, 2023, CME provides substantial margin offsets for positions in opposing directions 

between the same contract months. CME Clearing is planning to enhance margin efficiencies this 

month in applicable parts of the forward curve to further remove potential barriers to voluntary 

conversions of LIBOR risk to SOFR risk (Source: CME). 

Recommended Best Practices

In light of the landscape for the exchange-traded derivatives markets and the four statements above, 

the Subcommittee, with the MRAC’s approval, has produced the below best practices to market 

participants transacting in Eurodollar futures and options: 

1. All market participants that currently trade Eurodollar futures and options should 

ensure that they are operationally capable of transacting in SOFR futures and options 

as well as ICS products between Eurodollar futures and SOFR futures as soon as 

possible. While there is currently significant crossover between the firms that trade Eurodollar 

futures and SOFR futures, it is likely that there are some firms who have yet to transact in 

SOFR futures altogether. Ensuring operational capability to execute SOFR-based transactions 

is a critical milestone that all market participants should meet prior to end-2021.

2. All market participants should replace use of LIBOR with SOFR for new contracts, 

including exchange-traded derivatives, after end-2021. US banking supervisory guidance 

to cease entering into new contracts that use USD LIBOR as a reference rate as soon as 

practicable and in any event by December 31, 2021 directly applies to institutions supervised 

by the Federal Reserve System, the Federal Deposit Insurance Corporation and the Office of 

the Comptroller of the Currency. This guidance is expected to prompt supervised banks to 

replace use of LIBOR with SOFR for new contracts, except in certain limited exemptions 

provided in the guidance related to hedging or market making for legacy LIBOR contracts6. 

While this guidance directly applies only to supervised banks, the Subcommittee believes 

using SOFR in place of LIBOR for new contracts, including exchange-traded derivatives, also 

represents sound risk management strategy for non-bank market participants.

 

6 US supervisory guidance notes that there may be limited circumstances when it would be appropriate for a bank to enter 

into new USD LIBOR contracts after December 31, 2021, such as: (i) transactions executed for purposes of required 

participation in a central counterparty auction procedure in the case of a member default, including transactions to hedge 

the resulting USD LIBOR exposure; (ii) market making in support of client activity related to USD LIBOR transactions 

executed before January 1, 2022; (iii) transactions that reduce or hedge the bank's or any client of the bank's USD LIBOR 

exposure on contracts entered into before January 1, 2022; and (iv) novations of USD LIBOR transactions executed 

before January 1, 2022.