SOFR ‘ahead of schedule,’ Fed exploring ‘SAFR’ cash market version

Implementation of the “secured overnight financing rate” (SOFR) – meant to supplant the London Interbank Offered Rate (LIBOR), and in existence only three months – is ahead of schedule, the Federal Reserve’s top supervisor said Thursday, and is on the verge to being adapted for use in other markets.

SOFR, a broad a broad measure of the cost of borrowing cash overnight collateralized by U.S. Treasury securities, was developed in the wake of issues that arose with use of LIBOR.

Specifically, according to the Federal Reserve Bank of New York (FRBNY), SOFR includes all trades in the “Broad General Collateral Rate” plus bilateral Treasury repurchase agreement (repo) transactions cleared through the Delivery-versus-Payment (DVP) service offered by the Fixed Income Clearing Corporation (FICC), which is filtered to remove a portion of transactions considered “specials.”

In a speech presented via recorded video, Federal Reserve Vice Chairman for Supervision Randal Quarles told the Alternative Reference Rates Committee Roundtable (ARRC) at the FRBNY that the effort to implement SOFR is ahead of schedule” and that “the ARRC has recognized that we have to make transitioning to SOFR as easy as it can be.”

Quarles also told the group that, in an effort to encourage the use of SOFR in cash markets where “it is appropriate,” the Federal Reserve could consider “publishing a compound average of SOFR that market participants could then use.”

He said a suggested name could be “SAFR,” for “secured average financing rate.”

“This is something that we are encouraging our staff to explore,” he said. ”Publishing a compound average rate that encourages broader use of SOFR would help make our financial system more resilient.”

Remarks by Vice Chairman for Supervision Quarles At the Alternative Reference Rates Committee Roundtable, The Federal Reserve Bank of New York, New York, New York