Market participants have executed the first electronic secured overnight financing rate (SOFR) versus effective federal funds rate (EFFR) basis swap compression trade on Bloomberg’s swap execution facility (BSEF).
The 10-year cleared swap unwind of SOFR used request-for-quote through Bloomberg’s list trading tool, BOLT, for compression of the original position and was cleared at US based CME Group.
“Compression is a crucial tool for cleared market participants, and the ability to compress SOFR versus EFFR trades is of particular significance for our clearing members who are looking to boost operational and capital efficiency,” said Sunil Cutinho, president of CME Clearing.
“Being the first to market with our SOFR compression trading offering is a clear demonstration of Bloomberg’s commitment to support market participants looking to manage their IBOR exposure,” says Nicholas Bean, head of electronic trading solutions at Bloomberg.
Blomberg clients have had access to trade SOFR outright and basis product suite electronically since 2018, alongside offerings in other major currency risk free rates (RFR) products set to replace LIBOR as market standard.
The transition from Libor to RFR is set for the end of next year. It is estimated that there are around $350tn worth of outstanding loans and financial contracts underpinned by Libor globally.
The Federal Reserve sponsored US Alternative Reference Rates Committee (ARRC), chose SOFR, a new benchmark for its alternative RFR while UK regulators opted for the sterling overnight index average (Sonia) which has been in existence for several years.
“The Libor transition is one of the most important changes in the Rates and FX market today,” said James Wang, global head of institutional interest rates and foreign exchange sales at Wells Fargo.
Steven Doherty, director, public investments, Northwestern Mutual, added that the transition “requires a synchronised effort, which is essential to a sound and resilient financial system. Executing the first electronic trade using this new enhanced functionality creates efficiencies and supports our goal of maximising long-term investment returns for our policy owners, while maintaining our unsurpassed financial strength.”