January 29, 2024, marks the end of an era for the interest rate derivatives (“IRD”) markets, since on this date the International Swaps and Derivatives Association (“ISDA”) and Clarus Financial Technology (“CFT”) published the final version of the ISDA-Clarus RFR Adoption Indicator.

As explained in the ISDA Research Note accompanying today’s publication, the indicator was developed by ISDA and CFT to track how much global trading activity is conducted in cleared over-the-counter and exchange-traded IRD that reference risk-free rates (“RFR”) in eight major currencies: USD, EUR, JPY, GBP, AUD, CHF, CAD, and SGD.

From its first publication in July 2020, the RFR Adoption Indicator allowed market participants to monitor the transition from overnight to risk-free rates (for example, USD LIBOR to SOFR).

Trading activity was measured in terms of the discounted value of a basis point (or “DV01”), which describes the valuation change in a derivative contract resulting from a (parallel) or one basis point (0.01 percent) shift in the interest rate swaps that are used to value it (see page 10 of the ISDA-Clarus RFR Adoption Indicator whitepaper for additional information about the methodology used to calculate DV01).

The Adoption Indicator was first published in July 2020 and tracked global trading activity for the month of June 2020. Since then, ISDA and CFT published an RFR Adoption Indicator on more than 50 occasions to track IRD activity over differing measurement periods (e.g., monthly, quarterly, semi-annual, etc.).

The final ISDA-Clarus RFR Adoption Indicator compared Q4 2023 to Q4 2022 with the accompanying ISDA Research Note highlighting the following key metrics for the two quarterly periods:

• RFR-linked IRD DV01 increased to $73.2 billion from $46.5 billion.
• Total IRD DV01 grew to $118.4 billion compared to $90.1 billion.
• RFR-linked IRD traded notional rose to $391.6 trillion from $243.3 trillion.
• Total IRD traded notional grew to $672.0 trillion compared to $513.4 trillion.
• The percentage of trading activity in SOFR increased to 72.3 percent of total USD IRD DV01 in Q4 2023 compared to 59.9 percent in Q4 2022.
• CHF and GBP RFR-linked IRD DV01 accounted for 100 percent of total CHF IRD DV01 and 99.8 percent of total GBP IRD DV01, respectively, in Q4 2023.

ISDA-CFT also published a Summary Report for the quarterly comparisons with useful charts and other graphics.

Overnight rates, fare thee well; the era of risk-free rates is conclusively upon us.

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