As Europe grapples with an uncertain backdrop for growth and inflation, interest rate risk is a source of volatility which many market participants must manage. In this environment, access to reliable liquidity and sophisticated hedging tools offers execution certainty, margin offsets, and the ability to apply inter-contract spread strategies.

As the home of European interest rate derivatives, ICE offers the deepest pool of liquidity for trading Euro short-term interest rate futures. Since November 2023, average daily volumes in 3-Month €STR futures have been ~20K, with a high of 68,558 lots traded on February 8, 2024. This liquidity provides an opportunity to trade, hedge and allocate capital efficiently using a robust European rate. Other advantages of ICE’s €STR contracts include one quarter tick pricing to enable granular price discovery, orderbook liquidity supported by dedicated market makers, inter-contract spreads with Euribor futures, and margin offsets on 90%+ vs Euribor. ECB Dated ESTR Futures which have recently been launched by ICE also allow market participants to trade and hedge ECB policy dates.

As money markets develop risk-free rates, €STR looks to be an ideal complement for Euribor – which remains the key benchmark rate in Europe. The future of Euribor was assured in December 2023, with the European Securities and Markets Authority Euro Risk-Free Rates Working Group noting Euribor’s “systemic importance” in the European Union, as it announced that EU interest rate reform was complete. ICE Euribor has open interest at 4.65 million contracts (see chart) and continues to be used across trillions of dollars of financial instruments globally, including mortgages, syndicated loans, and variable rate debt issues.

ICE’s inter-contract spreads offer the ability to trade the differential between the risk-free rate (€STR) and overnight interbank rate (Euribor) within a risk-free structure and dedicated central limit order book. In other words, market participants can trade at a guaranteed price representing the difference in each leg, which results in buying one leg versus selling the other. This strategy offers the certainty of executing a spread at a desired price. For market participants, trading both €STR and Euribor on ICE offers margin efficiencies and access to significant depth of order book with Euribor - with open interest at ~4.5 million lots.

More broadly, ICE’s global interest rate contracts span geographies, currencies and tenors to help manage risk in a capital efficient manner. As monetary policy changes, ICE’s clients demand consistent liquidity. ICE offers liquid STIR futures and options on multiple currencies, namely EUR, GBP and CHF. ICE is the only exchange globally to offer liquid, multi-currency STIR futures and options. In addition to €STR futures, €STR options will soon be added to the product suite. These will build on ICE’s offering of highly liquid contracts, which enable increased trading and hedging opportunities across currency curves, so that traders can actively manage their rate risk throughout market cycles.