CORRA Futures

As part of the global efforts put forward by many jurisdictions to promote the development and adoption of alternative reference rates (including in Canada), Bourse de Montréal Inc. is currently working with the industry on a new Canadian Overnight Repo Rate Average ("CORRA") futures offering.

Context

In March 2018, Canada established the Canadian Alternative Reference Rate ("CARR") Working Group to identify and seek to develop a Canadian dollar term risk-free rate benchmark that is robust, reliable, and resilient to any market stress, as well as consistent with the IOSCO Principles for Financial Benchmarks and compliant with any applicable regulations. The term risk-free rate would act as a complementary reference rate for the Canadian market and would operate alongside the Canadian Dollar Offered Rate (CDOR).

The CARR is composed of the following subgroups:

  • Alternative rates – Seek to identify and evaluate options for an alternative Canadian risk-free or nearly-risk free overnight reference rate. This subgroup recommended an enhanced CORRA as the preferred Canadian risk-free rate. A consultation on the proposed enhancements ended on April 30, 2019. A final recommendation is expected to be published in the coming months.
     
  • Fallback language – Develop robust fallback language for non-derivatives products or contracts (i.e. floating rate notes, securitizations, hybrid capital notes and bank loans)
     
  • Transition subgroup – Provide the underlying framework to transition toward the widespread use of CORRA as a reference rate in Canadian dollar financial products
     
  • Term risk-free rate subgroup – Assess the need for a Canadian term risk-free rate benchmark. If required, develop the methodology and specifications for the term rate

The Montréal Exchange ("MX") is involved in the Canadian Alternative Reference Rate ("CARR") working group as an observer, as well as in the Transition subgroup where it chairs the Futures Market workstream, which aims to develop a robust Canadian benchmark interest rate futures contract based on CORRA. A consultation on the product design and supporting strategy is currently going on between the MX and different key stakeholders. More information will be posted as the project evolves.

Product update

Client Presentation: Overview of the North American interest rate benchmark transition and its impacts on the financial industry, including a focus on the Canadian context and upcoming launch of CORRA Futures.

Product specifications: The Bourse will initially focus on the development of the 3M CORRA Futures, but is also building the infrastructure to quickly support the 1M CORRA Futures if there is sufficient market demand.

Detailed Analysis: Excerpt of the document that was approved by the Rules and Policies Committee of the Bourse regarding the CORRA Futures initiative. This document contains information on:

  • Background and context
  • Description and objectives
  • Comparative analysis (benchmarking)
  • Impact analysis

Final settlement price: Final settlement price is based on the realized CORRA value during the reference period. Detailed calculation examples are provided here.