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Eonia®
Similar to our other STIR derivative futures and options contracts, the Eonia futures contracts are cash settled. These contracts, however, are unusual in that the underlying term has already passed by the time the contract settles. Thus a one month Eonia futures contract with a Last Trading Day in March will settle where the effective average rate of interest from having reinvested at Eonia for each day of the accrual period has turned out to have been. This differs to a three month Euribor futures contract expiring in mid-March, which will settle to a fixing for a deposit made in mid-March, and repaid in mid-June.
Pricing at expiry – the Exchange Delivery Settlement Price (EDSP) algorithm

Eonia Swap Index Future

The EDSP is based on the Three Month Eonia Swap Index, as sponsored by the European Banking Federation (EBF) and published by Reuters, at 11:00 hrs (CET) on the Last Trading Day. The settlement price will be 100.00 minus the Three Month Eonia Swap Index level rounded to three decimal places. Where the EDSP Rate is not an exact multiple of 0.001, it will be rounded to the nearest 0.001, or where the EDSP Rate is an exact uneven multiple of 0.0005, to the nearest lower 0.001. The EDSP shall be 100.00 minus the EDSP Rate.

Further information on the Eonia Swap Index is available at http://www.eoniaswap.org.

Eonia Future

Based on EONIA (Euro OverNight Index Average) as calculated by the ECB (European Central Bank) and published by Reuters in respect of each business day, the EDSP Rate represents the effective rate of interest achieved by reinvesting at Eonia for each day of the accrual period of the contract. The following formula shall be applied:

EDSP Rate =  Eonia pricing equation

Ei

= 

Eonia fixing on the ith day of the accrual period (if the First or Last Eonia Accrual Day is not a London business day, the previous available Eonia fixing is used)

di

= 

the number of days that the value Ei is applied (for the First or Last Eonia Accrual Day this is not necessarily the number of days for which the relevant Eonia fixing was valid)

x

= 

the number of Eonia fixings used in the accrual period, including the rate applied to the first calendar day of the accrual period where such calendar day is not a business day

N

= 

Total number of days for which the x fixings are applied i.e. the number of calendar days in the accrual period.

Where the EDSP Rate is not an exact multiple of 0.001, it will be rounded to the nearest 0.001 or, where the EDSP Rate is an exact uneven multiple of 0.0005, to the nearest lower 0.001.

The EDSP shall be determined as 100 minus the EDSP Rate, rounded as described above.

Fair pricing prior to expiry

Before the beginning of the accrual period to which a specific delivery month relates, the contract trades close to the normal forward deposit rates as it may be used to arbitrage between the term and overnight deposit markets. The contracts are therefore a useful hedging tool similar to Euribor futures contracts.

As more and more of the Eonia or Sonia rates become known, the EDSP should become more predictable and thus the contract character gradually evolves.

Arbitrage between the contract and the term and overnight deposit markets is still possible, however. At this stage in its life the Eonia futures contracts still offer a highly effective tool to position in expectation of central bank rate changes.

Further information:

Fixed Income Derivatives
+44 (0) 20 7379 2222
stirs@liffe.com

 The Exchange draws the following statement to the attention of potential users of its One Month EONIA and SONIA Indexed Contracts and its Three Month EONIA Swap Index Contracts. Members should ensure that their clients are made aware of the statement. “Statement in relation to the EDSP: The Exchange Delivery Settlement Price (“EDSP”) of the EONIA Swap Index Contracts is calculated on the basis of the relevant EONIA Swap Index rate as described in the Contract Specification. Potential users of the EONIA Swap Index Contracts made available on the London International Financial Futures and Options Exchange should familiarise themselves with the calculation procedures for EONIA Swap Index rates, as well as the contract terms of the EONIA Swap Index Contracts. In particular, potential users should familiarise themselves with the Fallback Rules published by the European Banking Federation governing the procedures to be followed by Thomson Reuters for calculation of EONIA Swap Index rates in the event that some contributing panel banks fail to submit data in a timely fashion, or at all, to Thomson Reuters for the calculation of such EONIA Swap Index rates. The Exchange Delivery Settlement Price (“EDSP”) of the One Month EONIA and SONIA Indexed Contracts is calculated on the basis of the relevant OverNight Index Average rates as described in the Contract Specification. Potential users of the One Month EONIA and SONIA Indexed Contracts made available on the London International Financial Futures and Options Exchange should familiarise themselves with the contract terms of the One Month EONIA and SONIA Indexed Contracts. Potential users should note that, whilst the relevant OverNight Index Average rates are publicly available, the detailed calculation procedures in relation to those rates are not published. Potential users of the One Month EONIA and SONIA Indexed Contracts should be aware that OverNight Index Average rates to be used in the calculation of a final EDSP will be amended only where the European Central Bank (“ECB”) or Thomson Reuters, as the case may be, indicates to the Exchange that there is an error in such OverNight Index Average rates before the Exchange publishes that final EDSP. In that event, and subject to the terms of the OverNight Index Average Contracts, the requisite corrections to all relevant OverNight Index Average rates will be made in order to calculate such final EDSP. The accrual period for One Month EONIA and SONIA Indexed Contracts is determined by the number of days in the ECB reserve maintenance period, in the case of EONIA, and the number of days between the Bank of England’s Monetary Policy Committee meetings, in the case of SONIA. The number of days in the respective periods currently varies from 28 to 42 days in the case of the ECB and 28 to 35 days in the case of the Bank of England. A change in the length of such periods may lead to a change in the accrual period and Last Trading Day of One Month EONIA and SONIA Indexed Contracts. Moreover, both contracts have a standardised basis point value so that, for hedging purposes, a calculation will need to be made in relation to the hedge ratio to take into account any mismatch between the standardised basis point value and the actual basis point value of the position being hedged determined by the actual number of days in the accrual period.”