CME to launch 12 month SOFR Term rate this month

CME Group has said it will launch this month a 12 month Term SOFR rate, marking the latest product from the US group as the industry prepares for life after Libor.

CME said the Term SOFR 12 Month Reference Rate will become effective on Sunday September 19 with a trade date of Monday September 20. The 12 month rate will complement the one month, three month and six month Term SOFR rates already supported by the US exchange.

The Chicago-based exchange group said in a client notice: “The first publication of the new Term SOFR 12 Month reference rate will take place on Tuesday September 21 at approximately 5 a.m. Central Time (CT).”

Agha Mirza, Global Head of Interest Rate and OTC Products, said the launch reflects growing demand from investors for a longer term lending mechanism.

He said: “In response to strong demand from buy side clients, we have announced plans to launch an IOSCO- and BMR-compliant 12-month tenor Term SOFR benchmark rate starting this month."

Mirza added: “The calculation of the 12-month tenor Term SOFR benchmark draws upon $148bn (£106bn) in average daily volume, providing a robust and reliable source of available transactions. CME Group expects that the new 12-month benchmark will be evaluated by ARRC for endorsement for use in cash market fallbacks and legislation." 

The launch of the 12 month rate will complement the shorter term lending rates made available by CME in April.

Mirza said this week the increasing and steady adoption of the Secured Overnight Financing Rate (SOFR), the preferred US risk-free rate alternative to Libor, reflects a shift in the underlying behaviour of clients.

He said: “We have observed that global participation in SOFR futures is diverse and representative of what we would normally find in other markets, so there is every indication that this is a stable trend.”

The US exchange giant launched on August 23 a cash-settled future based on the 3-Month USD Bloomberg Short-Term Bank Yield Index, a rate SEC chairman Gary Gensler slammed in June as having some of the “same flaws as Libor”.