In a significant move today, the Alternative Reference Rates Committee—of which the American Bankers Association is a member—said it plans to recommend CME Group as the administrator for a Secured Overnight Financing Rate term rate, once market indicators outlined earlier this month are met. CME Group announced in April that it has begun publishing CME Term SOFR Reference rates for one, three and six-month tenors that are anchored in CME SOFR futures and are available for licensing at no charge with use limited to cash transactions initially until June 20, 2023.
The ARRC made its selection after a robust RFP process that evaluated proposals based on technical criteria, firm criteria, public policy criteria and calculation methodology criteria. “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,” said ARRC Chairman Tom Wipf, who is also vice chairman at Morgan Stanley. “Given that continued progress in developing SOFR derivatives market liquidity is readily achievable, a recommended term rate is now in clear sight. Today’s announcement should allow market participants to plan ahead for the recommendation of CME Group as the term rate administrator soon.”
Along with recommending a SOFR term rate, the ARRC will also 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.”