ARRC Formally Recommends Term SOFR

Sheppard Mullin Richter & Hampton LLP

As expected, on July 28, 2021, the Alternative Reference Rates Committee (ARRC) formally recommended the CME’s SOFR Term Rate. The SOFR Term Rate is known in advance of the related interest period and provides an indicative, forward-looking measurement of SOFR based on market expectations implied from leading derivatives markets. In this respect, the SOFR Term Rate functions in a manner similar to today’s LIBOR rates. In contrast, the Daily Simple SOFR or Daily Compounded SOFR used for interest periods beyond overnight can only be determined in arrears. The SOFR Term Rate thus facilitates in a significant way the transition away from the current LIBOR markets.

The ARRC’s recommendation of the SOFR Term Rate for derivatives is limited to end-user facing derivatives intended to hedge cash products referencing the SOFR Term Rate. The ARRC does not support the use of the SOFR Term Rate for the “vast majority” of the derivatives market.

Click here to read the press release.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Sheppard Mullin Richter & Hampton LLP | Attorney Advertising

Written by:

Sheppard Mullin Richter & Hampton LLP
Contact
more
less

Sheppard Mullin Richter & Hampton LLP on:

Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide
- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.