05.24.2021

ARRC Selects CME As SOFR Term Rate Administrator

CME Group, the world’s leading and most diverse derivatives marketplace, was selected by the Alternative Reference Rates Committee (ARRC) to publish its recommended forward-looking Secured Overnight Financing Rate (SOFR) term rates, following a robust request for proposals (RFP) process.

CME SOFR Term Reference Rates for 1-month, 3-month and 6-month tenors became available for licensing on April 21, 2021. CME Term SOFR Reference Rates can be accessed from the CME Group website, the CME Market Data Platform or various licensed data vendors.  For more information on CME Term SOFR Reference Rates, please visit www.cmegroup.com/termsofr.

Source: CME

ARRC Releases Update on its RFP Process for Selecting a Forward-Looking SOFR Term Rate Administrator

The Alternative Reference Rates Committee (ARRC) announced it selected CME Group as the administrator that it plans to recommend for a forward-looking Secured Overnight Financing Rate (SOFR) term rate, once market indicators for the term rate are met.

“The identification of CME Group as the strongest proposal to administer SOFR term rates leaves one final step in this work, the ARRC’s recommendation of a forward-looking SOFR term rate. Given that continued progress in developing SOFR derivatives market liquidity is readily achievable, a recommended term rate is now in clear sight,” said Tom Wipf, ARRC Chairman and Vice Chairman of Institutional Securities at Morgan Stanley. “Today’s announcement should allow market participants to plan ahead for the recommendation of CME Group as the term rate administrator soon.”

The ARRC identified CME Group’s submission as the strongest proposal after a thorough evaluation of the RFP responses. The ARRC evaluated proposals based on four specific criteria: technical criteria, firm criteria, public policy criteria, and calculation methodology criteria. The ARRC has conclusively identified CME Group’s proposal as having most effectively met those criteria.

“We are pleased to be selected by the ARRC to play this important role in delivering robust and sustainable, forward-looking SOFR term rates to the industry based on our deep and liquid underlying CME SOFR futures market,” said Sean Tully, CME Group Global Head of Financial and OTC Products. “We have long been aligned with the ARRC, and look forward to working with the ARRC and market participants to reach the market indicators the ARRC has set out for the recommendation of a SOFR term rate. We believe the ARRC’s decision to select CME Group as the administrator of term SOFR reference rates will provide the market with the certainty it needs to further grow SOFR issuance and swap market activity.”

Today’s announcement builds on the ARRC’s term rate principles and term rate market indicators—which together provide clear guidance that would allow the ARRC to recommend a SOFR-based term rate relatively soon. The ARRC recommended term rate is referenced directly in the ARRC fallback contract language and in the New York State Legislation. In conjunction with its work towards a final recommendation of a SOFR term rate, the ARRC also plans to recommend best practices for the use of the term rate, including for example as a fallback rate for legacy cash products referencing LIBOR and in new loans where the borrowers otherwise have difficulty in adapting to the new environment.

Source: ARCC

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