ARRC Issues Conventions for Forward-Looking SOFR Term Rate; Endorses Date for Cross-Currency Swaps

The Alternative Reference Rates Committee today made two significant announcements today. In the first, the ARRC recommended conventions and use cases for employing the forward-looking Secured Overnight Financing Rate term rates that are expected to be formally recommended by the ARRC in the coming days. The conventions address both new and legacy syndicated and bilateral business loans. The ARRC previously published recommended conventions for the use of SOFR in arrears in these transactions.

ARRC noted that “these convention recommendations are voluntary and may not be applicable to all segments of the business loan markets. Each market participant should decide for itself whether and to what extent to use these recommended conventions in its transactions.”

In its second announcement, the ARRC endorsed the Commodity Futures Trading Commission’s Market Risk Advisory Committee recommendation that intradealer trading conventions for cross-currency basis swaps between U.S. dollar, Japanese yen, sterling, and Swiss franc LIBOR move to each currency’s risk-free rate as of Sept. 21. This move in cross-currency basis swap trading conventions is the second phase in the MRAC’s recommended SOFR First initiative, which was announced by the CFTC earlier this month.