Secured Overnight Financing Rate

Secured Overnight Financing Rate ( SOFR ) is a reference interest rate for the US dollar currency . The SOFR is based on the transactions of the US dollar repo market .

history

In 2014, the US Federal Reserve Bank (Fed) convened the Alternative Reference Rates Committee (ARRC) to find a robust alternative to the US dollar Libor.

In June 2017 the ARRC proposed the SOFR as an alternative.

The Fed has published the new reference interest rate on a daily basis since April 2018.

In July 2018, the British banking regulator FCA announced that the Libor would only be supported until the end of 2021 and would have to be replaced.

properties

The SOFR has special properties that enable a robust reference interest rate:

The reference interest rate is determined by the US Federal Reserve Bank .
It is based on an active and well-defined market with sufficient volume, which would make market manipulation extremely difficult.
The determination is made according to a transparent process and with transactions that can be observed (and not on estimates as with the Libor).
The underlying market is active enough to provide a reliable basis even in difficult market situations.
The SOFR is based on transactions that are secured by Treasuries . This results in a different interest rate than the unsecured Libor.

detection

SOFR

The SOFR is calculated as a volume-weighted median from the repo transaction data from Bank of New York Mellon , DTTC's GCF Repo and DTTC's FICC .

The Fed publishes it every business day in New York at around 8:00 am New York time.

Forward rates

Forward interest rates can be calculated from the daily SOFR interest rates, whereby compound interest effects should be taken into account (“compound average term rates”).

An indicative determination of forward-looking forward interest rates can be made on the basis of the prices of SOFR forward contracts .

Web links

Secured Overnight Financing Rate. Federal Reserve Bank of New York, accessed May 6, 2019 .
A User's Guide to SOFR. The Alternative Reference Rates Committee, April 2019, accessed May 6, 2019 .
GCF Repo®. DTTC , accessed May 6, 2019 .
Fixed Income Clearing Corporation (FICC). DTTC , accessed May 6, 2019 .

Individual evidence

↑ ^a ^b ^c A User's Guide to SOFR. The Alternative Reference Rates Committee, April 2019, accessed May 6, 2019 .
↑ LIBOR: Where Things Now Stand. Baker McKenzie, November 27, 2017, accessed on May 6, 2019 .
↑ ^a ^b ^c SOFR and the Transition from LIBOR. Federal Reserve Bank of New York, February 26, 2019, accessed May 6, 2019 .
↑ Interest rate benchmark reform: transition to a world without LIBOR. FCA, July 12, 2018, accessed April 28, 2019 .
↑ ^a ^b Secured Overnight Financing Rate Data. Federal Reserve Bank of New York, accessed May 6, 2019 .
↑ ^a ^b Indicative Forward-Looking SOFR Term Rates. Federal Reserve Bank of New York, April 19, 2019, accessed May 6, 2019 .

[arrc_2019-04-1] A User's Guide to SOFR. The Alternative Reference Rates Committee, April 2019, accessed May 6, 2019 .

[bakermckenzie_2017-11-27-2] LIBOR: Where Things Now Stand. Baker McKenzie, November 27, 2017, accessed on May 6, 2019 .

[fed_2019-02-26-3] SOFR and the Transition from LIBOR. Federal Reserve Bank of New York, February 26, 2019, accessed May 6, 2019 .

[FCA_2018-07-12-4] Interest rate benchmark reform: transition to a world without LIBOR. FCA, July 12, 2018, accessed April 28, 2019 .

[fed_SOFR-5] Secured Overnight Financing Rate Data. Federal Reserve Bank of New York, accessed May 6, 2019 .

[fed_2019-04-19-6] Indicative Forward-Looking SOFR Term Rates. Federal Reserve Bank of New York, April 19, 2019, accessed May 6, 2019 .