Inter-dealer broking firm Tradition says it has seen a “strong increase” in trading activity linked to the secured overnight financing rate (SOFR).
During January, the firm says that SOFR-linked trades facilitated by its voice brokers and executed on its hybrid and swap execution facilities in the US accounted for approximately 65% of all inter-dealer broking on-SEF notional trading activity.
The increase in activity suggests that a push from global regulators to have money markets accelerate the switch from Libor and other existing benchmark rates, to risk free rates such as SOFR is starting to have an impact. The end of the use of Ibors is targeted for the end of 2021 but market participant have pushed back, suggesting that the replacements lack, most importantly, a term structure as they are based on overnight rates.
“As the global derivatives industry begins the move from Libor to new Risk-Free-Rates, it is critical that market participants have access to the highest quality data associated with these new markets, backed by the deepest and broadest pools of liquidity,” says Scott Fitzpatrick, global head of TraditionData. “This will help ensure, as much as can be expected, a smooth and seamless transition”.