By Milain Thakkar, Director, Tower Research Capital
Competition is usually treated as an unquestioned good in financial markets. In many respects, it is. New venues can sharpen pricing, improve commercial models, push incumbents to innovate, and give participants more choice.
But in listed rates, competition also runs into one of the strongest forces in market structure: the gravitational pull of existing liquidity.
That is the central challenge now facing Europe’s short-term interest rate markets. The launch and growth of futures linked to €STR, the euro short-term rate, has created a new competitive dynamic in a market long anchored by Euribor futures.
The opportunity is real. Since its first publication in 2019, €STR has become a core euro risk-free rate in OTC markets, particularly for swaps exposure. ICE reported in April 2026 that open interest in its three-month €STR futures was approaching 3 million contracts, underscoring that the market has moved beyond the experimental stage.
But the history of this space also counsels humility. Over the past 15 years, several venues have tried to capture part of the euro STIRs market from ICE. The backdrop has changed each time, but the underlying lesson has not: a good contract, or even a strong theoretical value proposition, does not automatically create a durable market.
That means the future of European rates is unlikely to be a simple replacement story.
Not Another Replacement Story
Euribor remains deeply embedded in the European financial system. It is linked to mortgages and loans, reflects a credit component that matters to many users, and was reformed in 2019 to meet EU benchmark regulation standards. Unlike the transition from LIBOR-linked Eurodollar futures to SOFR futures in the US, or LIBOR-linked Short Sterling futures to SONIA futures in the UK, there is no obvious regulatory mandate forcing the market to abandon Euribor futures in favor of €STR.
€STR can thrive alongside Euribor. In fact, the basis between the two rates is part of what gives both contracts their utility. They reflect different methodologies and support different forms of risk transfer. The more important question is what kind of ecosystem will be needed for €STR futures to become genuinely entrenched.
That is where the real work begins.
Contract Durability in Practice
A listed derivatives contract succeeds when it brings together a broad and durable mix of users: banks, hedge funds, asset managers, and proprietary trading firms. Each group has different reasons to participate, different constraints and different measures of value. Venues that want to build lasting liquidity need to solve for that whole ecosystem, not just for the launch of a new product.
Market makers are a critical part of that process. In new or developing contracts, liquidity providers can help create the conditions for confidence. Tight, resilient pricing gives end users greater comfort that they can enter and exit positions efficiently. That matters in normal conditions, and it matters even more in periods of volatility, when order books are tested and the reliability of liquidity becomes visible. But while market makers can catalyse a market, a diverse mix of participants is necessary for a market to thrive.
That distinction is important. Volume is an important metric, but volume by itself does not prove that a contract has achieved real adoption. A market made up largely of maker-to-maker activity may appear busy yet still lack the end-user depth required to survive over time. History has examples of venues sustained by professional trading activity that ultimately failed to become durable client markets. Nasdaq NLX launched in 2013 and was wound down in 2017 after struggling to sustain volumes; CurveGlobal, launched by LSEG in 2016 as a challenger rates venue, was shuttered in 2022 after failing to build sufficient traction against entrenched rivals.
For venues, this should shape both strategy and market design. If the goal is to build a resilient rates franchise, the commercial model must align with how various participants actually use the market. For liquidity providers, that means recognising that obligations and incentives need to support price quality rather than force firms into structures that distract from it. For example, structuring programmes that include open interest components may push market makers toward inventory management rather than tighter pricing, which may not help the order book, the venue, or the broader market.
The Limits of Fragmentation
The larger issue is fragmentation. In the short term, it is entirely possible that multiple venues will compete successfully for activity in both €STR and related rates products. Regulation, geopolitics, and commercial incentives can all support a period of parallel liquidity formation. That kind of competition can be healthy, particularly if it encourages venues to be more innovative and responsive to participants.
Over a longer horizon, however, the market may have less appetite for a permanently bifurcated liquidity structure. Capital is scarce, and liquidity fragmentation carries a cost. If the same risk is divided across multiple venues, participants must think not only about price, but about margin, clearing relationships, balance sheet usage, and the operational burden of maintaining access to fragmented pools of liquidity.
That does not mean competition will disappear, but it does suggest that competition will have to be earned. The venues that endure will likely be those that offer clear benefits throughout the trading lifecycle. They will need to demonstrate a convincing reason for end users to commit liquidity, capital, and workflow to their markets.
One possible frontier is the growing connection between cash bond markets and listed rates. Many of the same underlying risk factors are at play, and some participants are increasingly looking across the high-frequency and medium-frequency trading spectrum for new opportunities. For proprietary firms in particular, cash bonds may represent a natural extension of existing rates expertise. A venue that can support that convergence in a thoughtful way could create a broader value proposition than one focused narrowly on a single futures contract.
The next phase of European rates competition will not be decided by who lists a contract first, or who generates the most attention in the early stages of trading. It will be decided by who can build the deepest, broadest, and most capital-efficient marketplace around the contracts that matter.
Competition can open the door, but conviction from the market is what keeps it open.