IBOR reform: USD LIBOR deadline, the big one approaches…

SOFR dollar swaps surge to new record as transition deadline looms

A record 85% of USD swaps referenced the Secured Overnight Financing Rate (SOFR) benchmark in March, according to data from OSTTRA. This comes at a critical milestone in the transition to Risk-Free Rates (RFRs), with USD London Interbank Offered Rate (LIBOR) due to expire in less than 90 days (30 June 2023).

The growth in the volume of USD SOFR referenced swaps executed in March continues a steady month-by-month progression for the new derivative contracts, rising 23% over the last 12 months from 62% in March 2022.

The increased adoption of SOFR – an alternative rate to LIBOR that measures the cost of borrowing cash overnight collateralised by US Treasuries – comes in response to the decision to discontinue LIBOR following concerns surrounding the benchmark rate’s reliability and accuracy.

OSTTRA, through its post trade processing and compression services, helps firms smoothly transition from legacy IBORs to RFRs including playing a crucial role in enabling firms to manage the migration of legacy cleared portfolios.

“This data paints an encouraging picture of the industry’s progress in transitioning away from LIBOR,” says Kirston Winters, Chief Risk Officer at OSTTRA. “As we saw with the successful departure from IBOR across mainstream markets such as the UK and Japan, the operational burden in delivering this kind of switch is certainly manageable and can even be executed smoothly. That said, we haven’t reached the finish line just yet – a wide variety of key market participants must continue to cooperate effectively over the coming months, as we enter the final critical stage of this historic migration.”


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