ARRC Offers Principles for Forward-Looking SOFR; CME Announces Term SOFR Reference Rates

The Alternative Reference Rates Committee this week issued a set of principles that will guide its efforts to recommend a forward-looking Secured Overnight Financing Rate term rate. The ARRC said that this potential forward-looking rate should meet the ARRC’s criteria for alternative reference rates, be rooted in a robust and sustainable base of derivatives transactions over time and have a limited scope of use.

In light of guidance from U.S. regulators encouraging banks to cease entering into new contracts referencing U.S. dollar Libor by Dec. 31, the ARRC told market participants “not to wait for a term rate and to make use of current SOFR conventions available now,” but added that it “has long recognized that a forward-looking SOFR term rate may be a supporting tool for certain uses in the transition, and has recommended a number of actions aimed at building liquidity in SOFR derivatives that would help to ensure the robustness of any recommended term rate.”

In related news, the financial derivatives exchange CME Group today announced that it has begun publishing CME Term SOFR Reference Rates for one, three and six-month tenors, all of which it states align with the ARRC’s key principles. The rates—which are anchored in CME SOFR futures—are available for licensing at no charge with use limited to cash transactions initially until June 20, 2023.

Also in reference rate transition news, the American Financial Exchange—an electronic exchange for interbank borrowing that publishes Ameribor, an unsecured reference rate—last week announced a forward-looking 30-day Ameribor rate that complies with the International Organization of Securities Commissions’ principles for financial benchmarks. Ameribor is based on the actual interbank borrowing costs of AFX members, including 167 regional, midsize and community banks. Salt Lake City-based Zions Bancorporation announced that it will adopt Ameribor as a Libor replacement in “many of its credit contracts beginning this summer.”