As LIBOR steadily progresses toward its retirement on 30 June this year, managers and trading teams will be deciding how best to navigate this new reality and gain a key advantage as the market completes its transitions to the Secured Overnight Financing Rate (SOFR).

Over a decade after red flags were raised in the banking community on the rate system, and almost three years since the official abandonment of LIBOR was announced and the prolonged transition period which followed, SOFR is finally here, to stay. The remaining few months until its official expiration will see institutions and teams around the world continue to use, but wind down, debt product transactions based on rates with varying maturities.

An (in)surmountable task

Firstly, there is the scale of the transition. Clearing houses have around $60 trillion of cleared USD swaps to be converted onto SOFR by mid-year, something that will create a fresh obstacle for banks that will need to manually rebook all of their cleared trades from a LIBOR trade to a SOFR trade, a not insignificant task. Secondly, a current ban on interdealer trading of term SOFR derivatives has been suggested by some market observers to pose a potential risk to swap dealers, due to prices deviating too radically from instruments linked to the compounded (in-arrears) version of the rate. Term SOFR derivatives are usually priced 1 – 5 points more than the regular SOFR swap, causing banks further consternation. The Fed’s recent decision in early March to hold its position will likely compound such frustration.

Tradition Predictive Overnight Repo (TPOR) Rate Service: A new tool in the arsenal

So, with a market and situation in a state of transition and flux, access to high quality, accurate and timely data services will be the differential factor institutions need to gain that upper hand.

Transparency and leading indicators of information are crucial in any market, and so access to data that gauges what the following day’s SOFR rate will be, can be the key insight needed. Our Tradition Predictive Overnight Repo (TPOR) Rate Service, created in partnership with Bank of New York Mellon (BNYM), is calculated by taking incoming data from both parties. We then use a proprietary methodology to produce a volume-weighted median repo rate throughout the trading day, which provides a view on the directional trend and informs our clients of where SOFR will fix and be published by the NY FED the following day.

Enhancing value with analytics

For raw data to be of value, it is transformed, interpolated, extrapolated, and enhanced by our state-of-the-art analytics team to generate maximum value. The data then needs to be packaged and presented in an easy-to-consume form by the Market Data product team. Our Tradition Predictive Overnight Repo (TPOR) Rate Service combines prices and volumes from our market leading General Collateral Repurchase agreements (“repo”) inter-dealer broking (IDB) desk, through which we talk to the market constantly during the trading day. This is alongside anonymised tri-party repo trade and volume data from BNYM.

Furthermore, our heritage as part of the wider Tradition Group means that we know intimately what data trading teams and managers need in order for them to perform. And because IDBs do not take a position on the market, the data produced is of great value as it is totally unbiased, nor position influenced.

As we countdown the months until LIBOR’s inevitable demise, and the markets continue to get used to operation under a different system, a secure, solid, and reliable partner and provider of intelligence is crucial. We believe that TraditionData, backed by many decades of experience, and driven by vision and innovation, is the market leader in this respect. Global presence and local expertise are what gives us the knowledge, integrity and trust as a source of information to the markets. The primary goal for us a business is to provide reliable, consistent and actionable intelligence to our clients. And most importantly, for those individuals and teams to trust the data that is presented to them.