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ARTICLE · 23 AUGUST 2021

ARRC Formally Recommends Term SOFR

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On July 29, 2021, the Alternative Reference Rates Committee (ARRC) formally recommended CME Group's forward-looking Secured Overnight Financing Rate (SOFR) term rates ("SOFR Term Rates")...

United StatesFinance and Banking
Donna Parisi
Donna Parisi
Geoffrey Goldman
Geoffrey Goldman
Azam Aziz
Azam Aziz
Mark Chorazak
Mark Chorazak
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Introduction

On July 29, 2021, the Alternative Reference Rates Committee (ARRC) formally recommended CME Group's forward-looking Secured Overnight Financing Rate (SOFR) term rates ("SOFR Term Rates"),1 marking a key step in the transition away from U.S. dollar LIBOR and providing market participants with an essential transition tool.

Background

In May 2021, the ARRC published a statement setting out the market indicators it would consider in order to recommend a term rate.2 These indicators included continued growth in overnight SOFR-linked derivatives, visible progress towards deepening SOFR liquidity (consistent with ARRC best practices) and visible growth in cash product offerings, including loans linked to averages of SOFR (either in advance or arrears). Following this statement, in June 2021 the CFTC's Market Risk Advisory Committee's Interest Rate Benchmark Reform Subcommittee (the "MRAC Subcommittee") recommended a "SOFR First" market best practice for

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