Re: The Nation's Financial Condition
Posted: Thu Aug 26, 2021 9:59 pm
Too bad you cannot give a substantive answer. Would make for a better exchange if you could. Keep trying.
Same Party, Different House
https://fanlax.com/forum/
PizzaSnake wrote: ↑Fri Aug 27, 2021 9:25 pm Time for a haircut. Snip, snip.
"At its most profound level, debt-financing public schools relies on problematic ideas of creditworthiness. For instance, Moody’s Investors Service, a pre-eminent credit-rating agency, bases a school district’s credit score on the district’s existing property value and residential income: The poorer the school district, the more it pays in interest and fees to borrow — from the point of view of creditors, such schools are “riskier.” The results of this process are unsurprisingly classist and racist. Funding schools by way of credit scores amounts to little more than operating a system of prejudices which ordains the haves with the capacity to have more, while chaining the have-nots to financial hardship."
"In 2021, the Philadelphia School District paid $311.5 million to service its debt. More than half — $162 million — went to Wall Street creditors as interest payments."
https://www.nytimes.com/2021/08/27/opin ... onomy.html
So bond issuance such as this are the wrong kind of financing for public education due to their pernicious continuance of societal imbalance.Farfromgeneva wrote: ↑Fri Aug 27, 2021 10:17 pmPizzaSnake wrote: ↑Fri Aug 27, 2021 9:25 pm Time for a haircut. Snip, snip.
"At its most profound level, debt-financing public schools relies on problematic ideas of creditworthiness. For instance, Moody’s Investors Service, a pre-eminent credit-rating agency, bases a school district’s credit score on the district’s existing property value and residential income: The poorer the school district, the more it pays in interest and fees to borrow — from the point of view of creditors, such schools are “riskier.” The results of this process are unsurprisingly classist and racist. Funding schools by way of credit scores amounts to little more than operating a system of prejudices which ordains the haves with the capacity to have more, while chaining the have-nots to financial hardship."
"In 2021, the Philadelphia School District paid $311.5 million to service its debt. More than half — $162 million — went to Wall Street creditors as interest payments."
https://www.nytimes.com/2021/08/27/opin ... onomy.html
Couple of things having traded some muni debt as well as having created some analytical tools for owners and performs occasional portfolio valution work in the muni space:
- The small oligopoly of credit ratings agencies (NSROs-govt designation) performs a rating evaluation of the probability of default. That’s based on a variety of factors that would go into assessing a borrowers ability to repay.
- They started out assessing the quality of corporate borrowers and have branches out into sovereign and structured credit but it remains to be seen if this small group effectively applying the corporate framework to these other areas is appropriate.
- The ratings agencies are flawed no doubt but their job is ranking any borrowers ability to repay as agreed and that’s what a credit rating represents.
- The major factors I’ve seen into strength of municipal issuer generally include debt/assessed value, tax rate/assessed value (north of 3.5% is not good), tax revenues/total debt, population growth and then some more qualitative factors such as proportion of population with advanced degrees, quality and type of major employers, off balance sheet long term obligations (actually quantitative), etc.
- Bonds are basically issued as General Obligation (backed by the full faith and credit of the issuers taxing authority which means if they have to they’ll jack property taxes to pay off the debt due by legal requirement and those bonds are considered safer and are cheaper to
Borrower municipalities) and revenue bonds backed by a specific source of revenue and only that source though if they are tied to “essential services” (utilities, schools, water/sewer and occasionally a few other types) there is usually accepted a non legal “moral obligation” in that it’s essential to the existence of the municipality.
- Municipal issuer/borrowers are some of the worst at preprint and delivering their own audited financials in a timely manner as legally required. Like criminal level results across the universe including many larger systems.
- Markets price debt as an risk free rate for the term plus a credit spread to account for the risk of loss (expected loss = probability of default * loss given default/loss severity). Fiduciaries (asset managers, pension funds, mutual fund managers etc) are not supposed to price or evaluate buy/sell decisions based on credit rating at all (buy/sell decisions create a market equilibrium price acknowledging liquidity blows in the muni market which still trades secondaries like it’s the Wild West due to so much held in high retail/lower middle market account lot sizes). Fill/kill and pricing should be independent and ratings should be a support for the decision.
- Reality is for a few structural market reasons ratings are
tied to pricing wayyyy too much. One is the asset management industry comps its portfolio managers based on performance against large benchmarks so they all tend to nut hug the benchmarks in performance with the same reference names and “diversity” in many overlapping books. Another is it’s the lazy way to do it.
- Pennsylvania is unique I recall as a non expert but seeing a sh*t-ton of cheap, lower IG rated pennsy school district paper and have subsequently gotten to know the execs of a few shops up there (Boenning and Scattergood and Janney Montgomery Scott) who underwrite a lot of that issuance. They have every school district act as its own issuer and then gets support via credit enhancement through a state program problem is PA is like BBB+ rated, or garbage, by state standards (see rte 80 quality as reference). So the if the state wanted to support poorer schools
Districts they fund more direct cash transfers to those places than the worthless system they have in place now.
So thought these considerations were important before flipping the entire market upside down, it generally functions fine for what it’s supposed to do but it’s how the states and localities operate around it which needs to be scrutinized IMO.
To first part at least the way Pennsylvania does it but perhaps for all. Have to compare with other forms of financing both operating working capital needs (TAN - Tax anticipation notes for when cash collections don’t match up w expenses for a few months) and capital expenditures. I’d argue for capex that installment type muni bonds (maturities or series within an issuance get retired each year with a huge chunk in a longer dated maturity) but rolling over any working capital in bond financings are a joke. If a bank has a borrower with a revolving working capital line of credit and it doesn’t have at least a one month clean up (paid facility down to zero) the bank will make you pull a piece of the debt off the line and term it out which is to say amortize it or have a principal balance curtailment. You don’t finance working capital over longer periods of time that’s a sign of financial mismanagement.PizzaSnake wrote: ↑Sat Aug 28, 2021 12:53 pmSo bond issuance such as this are the wrong kind of financing for public education due to their pernicious continuance of societal imbalance.Farfromgeneva wrote: ↑Fri Aug 27, 2021 10:17 pmPizzaSnake wrote: ↑Fri Aug 27, 2021 9:25 pm Time for a haircut. Snip, snip.
"At its most profound level, debt-financing public schools relies on problematic ideas of creditworthiness. For instance, Moody’s Investors Service, a pre-eminent credit-rating agency, bases a school district’s credit score on the district’s existing property value and residential income: The poorer the school district, the more it pays in interest and fees to borrow — from the point of view of creditors, such schools are “riskier.” The results of this process are unsurprisingly classist and racist. Funding schools by way of credit scores amounts to little more than operating a system of prejudices which ordains the haves with the capacity to have more, while chaining the have-nots to financial hardship."
"In 2021, the Philadelphia School District paid $311.5 million to service its debt. More than half — $162 million — went to Wall Street creditors as interest payments."
https://www.nytimes.com/2021/08/27/opin ... onomy.html
Couple of things having traded some muni debt as well as having created some analytical tools for owners and performs occasional portfolio valution work in the muni space:
- The small oligopoly of credit ratings agencies (NSROs-govt designation) performs a rating evaluation of the probability of default. That’s based on a variety of factors that would go into assessing a borrowers ability to repay.
- They started out assessing the quality of corporate borrowers and have branches out into sovereign and structured credit but it remains to be seen if this small group effectively applying the corporate framework to these other areas is appropriate.
- The ratings agencies are flawed no doubt but their job is ranking any borrowers ability to repay as agreed and that’s what a credit rating represents.
- The major factors I’ve seen into strength of municipal issuer generally include debt/assessed value, tax rate/assessed value (north of 3.5% is not good), tax revenues/total debt, population growth and then some more qualitative factors such as proportion of population with advanced degrees, quality and type of major employers, off balance sheet long term obligations (actually quantitative), etc.
- Bonds are basically issued as General Obligation (backed by the full faith and credit of the issuers taxing authority which means if they have to they’ll jack property taxes to pay off the debt due by legal requirement and those bonds are considered safer and are cheaper to
Borrower municipalities) and revenue bonds backed by a specific source of revenue and only that source though if they are tied to “essential services” (utilities, schools, water/sewer and occasionally a few other types) there is usually accepted a non legal “moral obligation” in that it’s essential to the existence of the municipality.
- Municipal issuer/borrowers are some of the worst at preprint and delivering their own audited financials in a timely manner as legally required. Like criminal level results across the universe including many larger systems.
- Markets price debt as an risk free rate for the term plus a credit spread to account for the risk of loss (expected loss = probability of default * loss given default/loss severity). Fiduciaries (asset managers, pension funds, mutual fund managers etc) are not supposed to price or evaluate buy/sell decisions based on credit rating at all (buy/sell decisions create a market equilibrium price acknowledging liquidity blows in the muni market which still trades secondaries like it’s the Wild West due to so much held in high retail/lower middle market account lot sizes). Fill/kill and pricing should be independent and ratings should be a support for the decision.
- Reality is for a few structural market reasons ratings are
tied to pricing wayyyy too much. One is the asset management industry comps its portfolio managers based on performance against large benchmarks so they all tend to nut hug the benchmarks in performance with the same reference names and “diversity” in many overlapping books. Another is it’s the lazy way to do it.
- Pennsylvania is unique I recall as a non expert but seeing a sh*t-ton of cheap, lower IG rated pennsy school district paper and have subsequently gotten to know the execs of a few shops up there (Boenning and Scattergood and Janney Montgomery Scott) who underwrite a lot of that issuance. They have every school district act as its own issuer and then gets support via credit enhancement through a state program problem is PA is like BBB+ rated, or garbage, by state standards (see rte 80 quality as reference). So the if the state wanted to support poorer schools
Districts they fund more direct cash transfers to those places than the worthless system they have in place now.
So thought these considerations were important before flipping the entire market upside down, it generally functions fine for what it’s supposed to do but it’s how the states and localities operate around it which needs to be scrutinized IMO.
If not these, then what vehicle should be used to overcome the endemic imbalance (which, it could be argued, was a deliberate result of white flight and the re-segregation of the public school system). Or are we just giving lip-service to the divide that exists in this country which is the real threat to our union?
CME will not enter into derives license for data so no one else can use the term rate. CME is a monopoly in everything but energy, ice competes with them there.Farfromgeneva wrote: ↑Sun Aug 29, 2021 6:47 pm Hey Lagerhead if your still keeping an eye here this may be interesting.
https://www.newyorkfed.org/medialibrary ... of_Use.pdf
ARRC Best Practice Recommendations Related to Scope of Use of the Term Rate1 Background:
In 2014, the ARRC selected SOFR as its recommended replacement rate for USD LIBOR. SOFR was selected after careful consideration of alternatives, given the robust underpinning of the US Treasury repo market following an extensive public consultation and as documented in the ARRC’s Second Report. In that same report, the ARRC recognized that there could be certain conditions where adapting to an overnight rate could be more difficult and thus explicitly included a goal of producing a forward- looking term rate for use in cash products in its Paced Transition Plan. The ARRC has selected and plans to formally recommend the CME SOFR term rates (SOFR Term Rate) once the indicators are met.
This document lays out the ARRC’s recommended best practices for the use of the SOFR Term Rate in contracts. The recommendations are intended to be in line with the principles set out by the ARRC,2 that use of the SOFR Term Rate should be in proportion to the depth of transactions in the underlying derivatives market and should not materially detract from volumes in the underlying SOFR-linked derivatives transactions that are relied upon to construct the SOFR Term Rate itself over time and as the market evolves. Like all of the ARRC best practices, the extent to which any market participant decides to implement or adopt any benchmark rate is voluntary. Therefore, each market participant should make its own independent evaluation and decision about whether or to what extent any recommendation is adopted.
Market participants are encouraged to remain attuned to use of the SOFR Term Rate over time given the importance that such use continues to be proportionate to the base of transactions underlying the SOFR Term Rate, and does not materially detract from those transactions in a way that compromises the robustness of the SOFR Term Rate itself as the market evolves, as outlined in the ARRC’s principles.
Use of the SOFR Term Rate in Legacy Contracts that Have Adopted ARRC Fallback Language
The ARRC has issued recommended fallback language for market participants’ voluntary use in contracts that reference USD LIBOR, with the goal of reducing the risk of serious market disruption when LIBOR is no longer usable. The ARRC made separate recommendations of language appropriate for LIBOR-based floating rate notes, bilateral business loans, syndicated loans, securitizations, residential adjustable rate mortgages, and private student loans. These recommendations were made after widespread market consultation, which showed that the clear majority of respondents preferred to fallback to an ARRC- recommended SOFR term rate in order to support the smooth transition of legacy contracts away from LIBOR. For this reason, although the ARRC recognized that falling back to other forms of SOFR would be in line with its principles, under the recommended contract language for floating rate notes, bilateral and syndicated business loans, and securitizations, the first step of the fallback waterfall is a forward- looking, SOFR-based term rate (provided one has been recommended in the appropriate tenor) by the
1 Updated 8/27/2021 For more information see the FAQs on Best Practice Recommendations Related to Scope of Use of the Term Rate.
2 The scope of use recommendations are also in line with guidance issued by the FSB.
ALTERNATIVE REFERENCE RATES COMMITTEE
ARRC.3 Accordingly, following the formal recommendation of the SOFR Term Rate, legacy contracts that have adopted the ARRC’s fallback language without modification to the rate waterfall will, if the relevant tenor exists, fall back to the SOFR Term Rate once the contractual LIBOR replacement date occurs.
Under the legislation recently enacted by New York State, LIBOR-based instruments governed by New York law that do not provide effective fallbacks will transition to the applicable SOFR-based rate recommended by the ARRC, the Federal Reserve Board, or the Federal Reserve Bank of New York. The ARRC expects to make recommendations for the legislation that are consistent with its existing recommended fallback provisions.
Recommended Best Practices for Use of the SOFR Term Rate in New Contracts
For new contracts, the ARRC continues to recommend SOFR for all products, and as a general principle recommends that market participants use overnight SOFR and SOFR averages given their robustness, particularly in markets where we have seen that there can be successful adoption of these rates such as floating rate notes, consumer products including adjustable rate mortgages and student loans, and most securitizations. The ARRC also recommends the use of overnight SOFR and SOFR averages in cases where a party wishes to hedge in the most efficient and transparent manner. However, the ARRC also supports the use of the SOFR Term Rate in areas where use of overnight and averages of SOFR has proven to be difficult.
Specifically:
1. The ARRC supports the use of SOFR Term Rate in addition to other forms of SOFR for business loan activity —particularly multi-lender facilities, middle market loans, and trade finance loans—where transitioning from LIBOR to an overnight rate has been difficult and where use of a term rate could be helpful in addressing such difficulties. The ARRC also recognizes that the SOFR Term Rate may also be appropriate for certain securitizations that hold underlying business loans or other assets that reference the SOFR Term Rate and where those assets cannot easily reference other forms of SOFR.
2. The ARRC does not support the use of the SOFR Term Rate for the vast majority of the derivatives markets, because these markets already reference SOFR compounded in arrears and transitioning derivatives markets to the more robust overnight risk-free rates (RFRs) is essential to ensure financial stability as emphasized by the Financial Stability Board.4 The ARRC
3 ARRC-recommended language for consumer products refers to the rate recommended by the ARRC for such products. As with other products, consultations indicated that most market participants also preferred to fall back to a SOFR Term Rate if the ARRC had recommended one.
4 The FSB has stated, “Because derivatives represent a particularly large exposure to most IBORs, and because these prospective RFR-derived term rates can only be robustly created if derivatives markets on the overnight RFRs are actively and predominantly used, the FSB believes that transition of derivatives to the more robust overnight RFRs is important to ensuring financial stability.”
ALTERNATIVE REFERENCE RATES COMMITTEE
recommends that any use of SOFR Term Rate derivatives be limited to end-user facing derivatives intended to hedge cash products that reference the SOFR Term Rate. This limitation is intended to avoid use that is not in proportion to, or materially detracts from, the depth of transactions in the underlying derivatives markets that are essential to the construction of the SOFR Term Rate over time.
Ultimately for the banks it’s going to be what the “safety and soundness” experts who oversee them desire. Unfortunately the Fed Reserve, FDIC, OCC and state banking commissions never will say anything in advance. I’ve seen all sorts of strategic and wholesale discussions with various banks and their regulators and at best you get a non committal maybe in a round about way. The banks have to fly blind and do the best they can and if they mess up even if out of their control the regulators will hit them of their exit with a MRA (matter requiring attention) and if you don’t clean it up by the next exam they’ll hit you with real consequences.lagerhead wrote: ↑Sun Aug 29, 2021 7:11 pmCME will not enter into derives license for data so no one else can use the term rate. CME is a monopoly in everything but energy, ice competes with them there.Farfromgeneva wrote: ↑Sun Aug 29, 2021 6:47 pm Hey Lagerhead if your still keeping an eye here this may be interesting.
https://www.newyorkfed.org/medialibrary ... of_Use.pdf
ARRC Best Practice Recommendations Related to Scope of Use of the Term Rate1 Background:
In 2014, the ARRC selected SOFR as its recommended replacement rate for USD LIBOR. SOFR was selected after careful consideration of alternatives, given the robust underpinning of the US Treasury repo market following an extensive public consultation and as documented in the ARRC’s Second Report. In that same report, the ARRC recognized that there could be certain conditions where adapting to an overnight rate could be more difficult and thus explicitly included a goal of producing a forward- looking term rate for use in cash products in its Paced Transition Plan. The ARRC has selected and plans to formally recommend the CME SOFR term rates (SOFR Term Rate) once the indicators are met.
This document lays out the ARRC’s recommended best practices for the use of the SOFR Term Rate in contracts. The recommendations are intended to be in line with the principles set out by the ARRC,2 that use of the SOFR Term Rate should be in proportion to the depth of transactions in the underlying derivatives market and should not materially detract from volumes in the underlying SOFR-linked derivatives transactions that are relied upon to construct the SOFR Term Rate itself over time and as the market evolves. Like all of the ARRC best practices, the extent to which any market participant decides to implement or adopt any benchmark rate is voluntary. Therefore, each market participant should make its own independent evaluation and decision about whether or to what extent any recommendation is adopted.
Market participants are encouraged to remain attuned to use of the SOFR Term Rate over time given the importance that such use continues to be proportionate to the base of transactions underlying the SOFR Term Rate, and does not materially detract from those transactions in a way that compromises the robustness of the SOFR Term Rate itself as the market evolves, as outlined in the ARRC’s principles.
Use of the SOFR Term Rate in Legacy Contracts that Have Adopted ARRC Fallback Language
The ARRC has issued recommended fallback language for market participants’ voluntary use in contracts that reference USD LIBOR, with the goal of reducing the risk of serious market disruption when LIBOR is no longer usable. The ARRC made separate recommendations of language appropriate for LIBOR-based floating rate notes, bilateral business loans, syndicated loans, securitizations, residential adjustable rate mortgages, and private student loans. These recommendations were made after widespread market consultation, which showed that the clear majority of respondents preferred to fallback to an ARRC- recommended SOFR term rate in order to support the smooth transition of legacy contracts away from LIBOR. For this reason, although the ARRC recognized that falling back to other forms of SOFR would be in line with its principles, under the recommended contract language for floating rate notes, bilateral and syndicated business loans, and securitizations, the first step of the fallback waterfall is a forward- looking, SOFR-based term rate (provided one has been recommended in the appropriate tenor) by the
1 Updated 8/27/2021 For more information see the FAQs on Best Practice Recommendations Related to Scope of Use of the Term Rate.
2 The scope of use recommendations are also in line with guidance issued by the FSB.
ALTERNATIVE REFERENCE RATES COMMITTEE
ARRC.3 Accordingly, following the formal recommendation of the SOFR Term Rate, legacy contracts that have adopted the ARRC’s fallback language without modification to the rate waterfall will, if the relevant tenor exists, fall back to the SOFR Term Rate once the contractual LIBOR replacement date occurs.
Under the legislation recently enacted by New York State, LIBOR-based instruments governed by New York law that do not provide effective fallbacks will transition to the applicable SOFR-based rate recommended by the ARRC, the Federal Reserve Board, or the Federal Reserve Bank of New York. The ARRC expects to make recommendations for the legislation that are consistent with its existing recommended fallback provisions.
Recommended Best Practices for Use of the SOFR Term Rate in New Contracts
For new contracts, the ARRC continues to recommend SOFR for all products, and as a general principle recommends that market participants use overnight SOFR and SOFR averages given their robustness, particularly in markets where we have seen that there can be successful adoption of these rates such as floating rate notes, consumer products including adjustable rate mortgages and student loans, and most securitizations. The ARRC also recommends the use of overnight SOFR and SOFR averages in cases where a party wishes to hedge in the most efficient and transparent manner. However, the ARRC also supports the use of the SOFR Term Rate in areas where use of overnight and averages of SOFR has proven to be difficult.
Specifically:
1. The ARRC supports the use of SOFR Term Rate in addition to other forms of SOFR for business loan activity —particularly multi-lender facilities, middle market loans, and trade finance loans—where transitioning from LIBOR to an overnight rate has been difficult and where use of a term rate could be helpful in addressing such difficulties. The ARRC also recognizes that the SOFR Term Rate may also be appropriate for certain securitizations that hold underlying business loans or other assets that reference the SOFR Term Rate and where those assets cannot easily reference other forms of SOFR.
2. The ARRC does not support the use of the SOFR Term Rate for the vast majority of the derivatives markets, because these markets already reference SOFR compounded in arrears and transitioning derivatives markets to the more robust overnight risk-free rates (RFRs) is essential to ensure financial stability as emphasized by the Financial Stability Board.4 The ARRC
3 ARRC-recommended language for consumer products refers to the rate recommended by the ARRC for such products. As with other products, consultations indicated that most market participants also preferred to fall back to a SOFR Term Rate if the ARRC had recommended one.
4 The FSB has stated, “Because derivatives represent a particularly large exposure to most IBORs, and because these prospective RFR-derived term rates can only be robustly created if derivatives markets on the overnight RFRs are actively and predominantly used, the FSB believes that transition of derivatives to the more robust overnight RFRs is important to ensuring financial stability.”
ALTERNATIVE REFERENCE RATES COMMITTEE
recommends that any use of SOFR Term Rate derivatives be limited to end-user facing derivatives intended to hedge cash products that reference the SOFR Term Rate. This limitation is intended to avoid use that is not in proportion to, or materially detracts from, the depth of transactions in the underlying derivatives markets that are essential to the construction of the SOFR Term Rate over time.
ARRC has recommended to cftc that a sofr yet rate can’t be used in derivatives.
ARRC pushing a SOFR and telling banks BSBY and AMERIBOR are not ARRC supported risk free rates. Tom Wipf is an ass who should have been shown the door at MS long ago. Empty suit.
ICE does well with corporate and other esoteric credit derivatives.lagerhead wrote: ↑Sun Aug 29, 2021 7:11 pmCME will not enter into derives license for data so no one else can use the term rate. CME is a monopoly in everything but energy, ice competes with them there.Farfromgeneva wrote: ↑Sun Aug 29, 2021 6:47 pm Hey Lagerhead if your still keeping an eye here this may be interesting.
https://www.newyorkfed.org/medialibrary ... of_Use.pdf
ARRC Best Practice Recommendations Related to Scope of Use of the Term Rate1 Background:
In 2014, the ARRC selected SOFR as its recommended replacement rate for USD LIBOR. SOFR was selected after careful consideration of alternatives, given the robust underpinning of the US Treasury repo market following an extensive public consultation and as documented in the ARRC’s Second Report. In that same report, the ARRC recognized that there could be certain conditions where adapting to an overnight rate could be more difficult and thus explicitly included a goal of producing a forward- looking term rate for use in cash products in its Paced Transition Plan. The ARRC has selected and plans to formally recommend the CME SOFR term rates (SOFR Term Rate) once the indicators are met.
This document lays out the ARRC’s recommended best practices for the use of the SOFR Term Rate in contracts. The recommendations are intended to be in line with the principles set out by the ARRC,2 that use of the SOFR Term Rate should be in proportion to the depth of transactions in the underlying derivatives market and should not materially detract from volumes in the underlying SOFR-linked derivatives transactions that are relied upon to construct the SOFR Term Rate itself over time and as the market evolves. Like all of the ARRC best practices, the extent to which any market participant decides to implement or adopt any benchmark rate is voluntary. Therefore, each market participant should make its own independent evaluation and decision about whether or to what extent any recommendation is adopted.
Market participants are encouraged to remain attuned to use of the SOFR Term Rate over time given the importance that such use continues to be proportionate to the base of transactions underlying the SOFR Term Rate, and does not materially detract from those transactions in a way that compromises the robustness of the SOFR Term Rate itself as the market evolves, as outlined in the ARRC’s principles.
Use of the SOFR Term Rate in Legacy Contracts that Have Adopted ARRC Fallback Language
The ARRC has issued recommended fallback language for market participants’ voluntary use in contracts that reference USD LIBOR, with the goal of reducing the risk of serious market disruption when LIBOR is no longer usable. The ARRC made separate recommendations of language appropriate for LIBOR-based floating rate notes, bilateral business loans, syndicated loans, securitizations, residential adjustable rate mortgages, and private student loans. These recommendations were made after widespread market consultation, which showed that the clear majority of respondents preferred to fallback to an ARRC- recommended SOFR term rate in order to support the smooth transition of legacy contracts away from LIBOR. For this reason, although the ARRC recognized that falling back to other forms of SOFR would be in line with its principles, under the recommended contract language for floating rate notes, bilateral and syndicated business loans, and securitizations, the first step of the fallback waterfall is a forward- looking, SOFR-based term rate (provided one has been recommended in the appropriate tenor) by the
1 Updated 8/27/2021 For more information see the FAQs on Best Practice Recommendations Related to Scope of Use of the Term Rate.
2 The scope of use recommendations are also in line with guidance issued by the FSB.
ALTERNATIVE REFERENCE RATES COMMITTEE
ARRC.3 Accordingly, following the formal recommendation of the SOFR Term Rate, legacy contracts that have adopted the ARRC’s fallback language without modification to the rate waterfall will, if the relevant tenor exists, fall back to the SOFR Term Rate once the contractual LIBOR replacement date occurs.
Under the legislation recently enacted by New York State, LIBOR-based instruments governed by New York law that do not provide effective fallbacks will transition to the applicable SOFR-based rate recommended by the ARRC, the Federal Reserve Board, or the Federal Reserve Bank of New York. The ARRC expects to make recommendations for the legislation that are consistent with its existing recommended fallback provisions.
Recommended Best Practices for Use of the SOFR Term Rate in New Contracts
For new contracts, the ARRC continues to recommend SOFR for all products, and as a general principle recommends that market participants use overnight SOFR and SOFR averages given their robustness, particularly in markets where we have seen that there can be successful adoption of these rates such as floating rate notes, consumer products including adjustable rate mortgages and student loans, and most securitizations. The ARRC also recommends the use of overnight SOFR and SOFR averages in cases where a party wishes to hedge in the most efficient and transparent manner. However, the ARRC also supports the use of the SOFR Term Rate in areas where use of overnight and averages of SOFR has proven to be difficult.
Specifically:
1. The ARRC supports the use of SOFR Term Rate in addition to other forms of SOFR for business loan activity —particularly multi-lender facilities, middle market loans, and trade finance loans—where transitioning from LIBOR to an overnight rate has been difficult and where use of a term rate could be helpful in addressing such difficulties. The ARRC also recognizes that the SOFR Term Rate may also be appropriate for certain securitizations that hold underlying business loans or other assets that reference the SOFR Term Rate and where those assets cannot easily reference other forms of SOFR.
2. The ARRC does not support the use of the SOFR Term Rate for the vast majority of the derivatives markets, because these markets already reference SOFR compounded in arrears and transitioning derivatives markets to the more robust overnight risk-free rates (RFRs) is essential to ensure financial stability as emphasized by the Financial Stability Board.4 The ARRC
3 ARRC-recommended language for consumer products refers to the rate recommended by the ARRC for such products. As with other products, consultations indicated that most market participants also preferred to fall back to a SOFR Term Rate if the ARRC had recommended one.
4 The FSB has stated, “Because derivatives represent a particularly large exposure to most IBORs, and because these prospective RFR-derived term rates can only be robustly created if derivatives markets on the overnight RFRs are actively and predominantly used, the FSB believes that transition of derivatives to the more robust overnight RFRs is important to ensuring financial stability.”
ALTERNATIVE REFERENCE RATES COMMITTEE
recommends that any use of SOFR Term Rate derivatives be limited to end-user facing derivatives intended to hedge cash products that reference the SOFR Term Rate. This limitation is intended to avoid use that is not in proportion to, or materially detracts from, the depth of transactions in the underlying derivatives markets that are essential to the construction of the SOFR Term Rate over time.
ARRC has recommended to cftc that a sofr yet rate can’t be used in derivatives.
ARRC pushing a SOFR and telling banks BSBY and AMERIBOR are not ARRC supported risk free rates. Tom Wipf is an ass who should have been shown the door at MS long ago. Empty suit.
Sprecher and Tom Farley made a good team, jumped on buying data and data companies in equities, commodities and derivatives to license. No comment on Kelly.Farfromgeneva wrote: ↑Sun Aug 29, 2021 7:31 pmICE does well with corporate and other esoteric credit derivatives.lagerhead wrote: ↑Sun Aug 29, 2021 7:11 pmCME will not enter into derives license for data so no one else can use the term rate. CME is a monopoly in everything but energy, ice competes with them there.Farfromgeneva wrote: ↑Sun Aug 29, 2021 6:47 pm Hey Lagerhead if your still keeping an eye here this may be interesting.
https://www.newyorkfed.org/medialibrary ... of_Use.pdf
ARRC Best Practice Recommendations Related to Scope of Use of the Term Rate1 Background:
In 2014, the ARRC selected SOFR as its recommended replacement rate for USD LIBOR. SOFR was selected after careful consideration of alternatives, given the robust underpinning of the US Treasury repo market following an extensive public consultation and as documented in the ARRC’s Second Report. In that same report, the ARRC recognized that there could be certain conditions where adapting to an overnight rate could be more difficult and thus explicitly included a goal of producing a forward- looking term rate for use in cash products in its Paced Transition Plan. The ARRC has selected and plans to formally recommend the CME SOFR term rates (SOFR Term Rate) once the indicators are met.
This document lays out the ARRC’s recommended best practices for the use of the SOFR Term Rate in contracts. The recommendations are intended to be in line with the principles set out by the ARRC,2 that use of the SOFR Term Rate should be in proportion to the depth of transactions in the underlying derivatives market and should not materially detract from volumes in the underlying SOFR-linked derivatives transactions that are relied upon to construct the SOFR Term Rate itself over time and as the market evolves. Like all of the ARRC best practices, the extent to which any market participant decides to implement or adopt any benchmark rate is voluntary. Therefore, each market participant should make its own independent evaluation and decision about whether or to what extent any recommendation is adopted.
Market participants are encouraged to remain attuned to use of the SOFR Term Rate over time given the importance that such use continues to be proportionate to the base of transactions underlying the SOFR Term Rate, and does not materially detract from those transactions in a way that compromises the robustness of the SOFR Term Rate itself as the market evolves, as outlined in the ARRC’s principles.
Use of the SOFR Term Rate in Legacy Contracts that Have Adopted ARRC Fallback Language
The ARRC has issued recommended fallback language for market participants’ voluntary use in contracts that reference USD LIBOR, with the goal of reducing the risk of serious market disruption when LIBOR is no longer usable. The ARRC made separate recommendations of language appropriate for LIBOR-based floating rate notes, bilateral business loans, syndicated loans, securitizations, residential adjustable rate mortgages, and private student loans. These recommendations were made after widespread market consultation, which showed that the clear majority of respondents preferred to fallback to an ARRC- recommended SOFR term rate in order to support the smooth transition of legacy contracts away from LIBOR. For this reason, although the ARRC recognized that falling back to other forms of SOFR would be in line with its principles, under the recommended contract language for floating rate notes, bilateral and syndicated business loans, and securitizations, the first step of the fallback waterfall is a forward- looking, SOFR-based term rate (provided one has been recommended in the appropriate tenor) by the
1 Updated 8/27/2021 For more information see the FAQs on Best Practice Recommendations Related to Scope of Use of the Term Rate.
2 The scope of use recommendations are also in line with guidance issued by the FSB.
ALTERNATIVE REFERENCE RATES COMMITTEE
ARRC.3 Accordingly, following the formal recommendation of the SOFR Term Rate, legacy contracts that have adopted the ARRC’s fallback language without modification to the rate waterfall will, if the relevant tenor exists, fall back to the SOFR Term Rate once the contractual LIBOR replacement date occurs.
Under the legislation recently enacted by New York State, LIBOR-based instruments governed by New York law that do not provide effective fallbacks will transition to the applicable SOFR-based rate recommended by the ARRC, the Federal Reserve Board, or the Federal Reserve Bank of New York. The ARRC expects to make recommendations for the legislation that are consistent with its existing recommended fallback provisions.
Recommended Best Practices for Use of the SOFR Term Rate in New Contracts
For new contracts, the ARRC continues to recommend SOFR for all products, and as a general principle recommends that market participants use overnight SOFR and SOFR averages given their robustness, particularly in markets where we have seen that there can be successful adoption of these rates such as floating rate notes, consumer products including adjustable rate mortgages and student loans, and most securitizations. The ARRC also recommends the use of overnight SOFR and SOFR averages in cases where a party wishes to hedge in the most efficient and transparent manner. However, the ARRC also supports the use of the SOFR Term Rate in areas where use of overnight and averages of SOFR has proven to be difficult.
Specifically:
1. The ARRC supports the use of SOFR Term Rate in addition to other forms of SOFR for business loan activity —particularly multi-lender facilities, middle market loans, and trade finance loans—where transitioning from LIBOR to an overnight rate has been difficult and where use of a term rate could be helpful in addressing such difficulties. The ARRC also recognizes that the SOFR Term Rate may also be appropriate for certain securitizations that hold underlying business loans or other assets that reference the SOFR Term Rate and where those assets cannot easily reference other forms of SOFR.
2. The ARRC does not support the use of the SOFR Term Rate for the vast majority of the derivatives markets, because these markets already reference SOFR compounded in arrears and transitioning derivatives markets to the more robust overnight risk-free rates (RFRs) is essential to ensure financial stability as emphasized by the Financial Stability Board.4 The ARRC
3 ARRC-recommended language for consumer products refers to the rate recommended by the ARRC for such products. As with other products, consultations indicated that most market participants also preferred to fall back to a SOFR Term Rate if the ARRC had recommended one.
4 The FSB has stated, “Because derivatives represent a particularly large exposure to most IBORs, and because these prospective RFR-derived term rates can only be robustly created if derivatives markets on the overnight RFRs are actively and predominantly used, the FSB believes that transition of derivatives to the more robust overnight RFRs is important to ensuring financial stability.”
ALTERNATIVE REFERENCE RATES COMMITTEE
recommends that any use of SOFR Term Rate derivatives be limited to end-user facing derivatives intended to hedge cash products that reference the SOFR Term Rate. This limitation is intended to avoid use that is not in proportion to, or materially detracts from, the depth of transactions in the underlying derivatives markets that are essential to the construction of the SOFR Term Rate over time.
ARRC has recommended to cftc that a sofr yet rate can’t be used in derivatives.
ARRC pushing a SOFR and telling banks BSBY and AMERIBOR are not ARRC supported risk free rates. Tom Wipf is an ass who should have been shown the door at MS long ago. Empty suit.
I will, she sucks. Marketing chick who married the CEO and sprayed his money all around the state to buy a seat she couldn’t hang onto despite having backed and supported almost every winning local rep for a decade and they still didn’t back her up. WNBA has a lot of issues but I’ve never seen a team hate their owner as much and I’m including Donald Sterling and how Dave Winfield feels about George Steinbrenner in this as well so that’s saying a lot.lagerhead wrote: ↑Sun Aug 29, 2021 7:38 pmSprecher and Tom Farley made a good team, jumped on buying data and data companies in equities, commodities and derivatives to license. No comment on Kelly.Farfromgeneva wrote: ↑Sun Aug 29, 2021 7:31 pmICE does well with corporate and other esoteric credit derivatives.lagerhead wrote: ↑Sun Aug 29, 2021 7:11 pmCME will not enter into derives license for data so no one else can use the term rate. CME is a monopoly in everything but energy, ice competes with them there.Farfromgeneva wrote: ↑Sun Aug 29, 2021 6:47 pm Hey Lagerhead if your still keeping an eye here this may be interesting.
https://www.newyorkfed.org/medialibrary ... of_Use.pdf
ARRC Best Practice Recommendations Related to Scope of Use of the Term Rate1 Background:
In 2014, the ARRC selected SOFR as its recommended replacement rate for USD LIBOR. SOFR was selected after careful consideration of alternatives, given the robust underpinning of the US Treasury repo market following an extensive public consultation and as documented in the ARRC’s Second Report. In that same report, the ARRC recognized that there could be certain conditions where adapting to an overnight rate could be more difficult and thus explicitly included a goal of producing a forward- looking term rate for use in cash products in its Paced Transition Plan. The ARRC has selected and plans to formally recommend the CME SOFR term rates (SOFR Term Rate) once the indicators are met.
This document lays out the ARRC’s recommended best practices for the use of the SOFR Term Rate in contracts. The recommendations are intended to be in line with the principles set out by the ARRC,2 that use of the SOFR Term Rate should be in proportion to the depth of transactions in the underlying derivatives market and should not materially detract from volumes in the underlying SOFR-linked derivatives transactions that are relied upon to construct the SOFR Term Rate itself over time and as the market evolves. Like all of the ARRC best practices, the extent to which any market participant decides to implement or adopt any benchmark rate is voluntary. Therefore, each market participant should make its own independent evaluation and decision about whether or to what extent any recommendation is adopted.
Market participants are encouraged to remain attuned to use of the SOFR Term Rate over time given the importance that such use continues to be proportionate to the base of transactions underlying the SOFR Term Rate, and does not materially detract from those transactions in a way that compromises the robustness of the SOFR Term Rate itself as the market evolves, as outlined in the ARRC’s principles.
Use of the SOFR Term Rate in Legacy Contracts that Have Adopted ARRC Fallback Language
The ARRC has issued recommended fallback language for market participants’ voluntary use in contracts that reference USD LIBOR, with the goal of reducing the risk of serious market disruption when LIBOR is no longer usable. The ARRC made separate recommendations of language appropriate for LIBOR-based floating rate notes, bilateral business loans, syndicated loans, securitizations, residential adjustable rate mortgages, and private student loans. These recommendations were made after widespread market consultation, which showed that the clear majority of respondents preferred to fallback to an ARRC- recommended SOFR term rate in order to support the smooth transition of legacy contracts away from LIBOR. For this reason, although the ARRC recognized that falling back to other forms of SOFR would be in line with its principles, under the recommended contract language for floating rate notes, bilateral and syndicated business loans, and securitizations, the first step of the fallback waterfall is a forward- looking, SOFR-based term rate (provided one has been recommended in the appropriate tenor) by the
1 Updated 8/27/2021 For more information see the FAQs on Best Practice Recommendations Related to Scope of Use of the Term Rate.
2 The scope of use recommendations are also in line with guidance issued by the FSB.
ALTERNATIVE REFERENCE RATES COMMITTEE
ARRC.3 Accordingly, following the formal recommendation of the SOFR Term Rate, legacy contracts that have adopted the ARRC’s fallback language without modification to the rate waterfall will, if the relevant tenor exists, fall back to the SOFR Term Rate once the contractual LIBOR replacement date occurs.
Under the legislation recently enacted by New York State, LIBOR-based instruments governed by New York law that do not provide effective fallbacks will transition to the applicable SOFR-based rate recommended by the ARRC, the Federal Reserve Board, or the Federal Reserve Bank of New York. The ARRC expects to make recommendations for the legislation that are consistent with its existing recommended fallback provisions.
Recommended Best Practices for Use of the SOFR Term Rate in New Contracts
For new contracts, the ARRC continues to recommend SOFR for all products, and as a general principle recommends that market participants use overnight SOFR and SOFR averages given their robustness, particularly in markets where we have seen that there can be successful adoption of these rates such as floating rate notes, consumer products including adjustable rate mortgages and student loans, and most securitizations. The ARRC also recommends the use of overnight SOFR and SOFR averages in cases where a party wishes to hedge in the most efficient and transparent manner. However, the ARRC also supports the use of the SOFR Term Rate in areas where use of overnight and averages of SOFR has proven to be difficult.
Specifically:
1. The ARRC supports the use of SOFR Term Rate in addition to other forms of SOFR for business loan activity —particularly multi-lender facilities, middle market loans, and trade finance loans—where transitioning from LIBOR to an overnight rate has been difficult and where use of a term rate could be helpful in addressing such difficulties. The ARRC also recognizes that the SOFR Term Rate may also be appropriate for certain securitizations that hold underlying business loans or other assets that reference the SOFR Term Rate and where those assets cannot easily reference other forms of SOFR.
2. The ARRC does not support the use of the SOFR Term Rate for the vast majority of the derivatives markets, because these markets already reference SOFR compounded in arrears and transitioning derivatives markets to the more robust overnight risk-free rates (RFRs) is essential to ensure financial stability as emphasized by the Financial Stability Board.4 The ARRC
3 ARRC-recommended language for consumer products refers to the rate recommended by the ARRC for such products. As with other products, consultations indicated that most market participants also preferred to fall back to a SOFR Term Rate if the ARRC had recommended one.
4 The FSB has stated, “Because derivatives represent a particularly large exposure to most IBORs, and because these prospective RFR-derived term rates can only be robustly created if derivatives markets on the overnight RFRs are actively and predominantly used, the FSB believes that transition of derivatives to the more robust overnight RFRs is important to ensuring financial stability.”
ALTERNATIVE REFERENCE RATES COMMITTEE
recommends that any use of SOFR Term Rate derivatives be limited to end-user facing derivatives intended to hedge cash products that reference the SOFR Term Rate. This limitation is intended to avoid use that is not in proportion to, or materially detracts from, the depth of transactions in the underlying derivatives markets that are essential to the construction of the SOFR Term Rate over time.
ARRC has recommended to cftc that a sofr yet rate can’t be used in derivatives.
ARRC pushing a SOFR and telling banks BSBY and AMERIBOR are not ARRC supported risk free rates. Tom Wipf is an ass who should have been shown the door at MS long ago. Empty suit.
The entire ICE IT stack for anything but equities is built on Enron technology.Farfromgeneva wrote: ↑Sun Aug 29, 2021 8:21 pmI will, she sucks. Marketing chick who married the CEO and sprayed his money all around the state to buy a seat she couldn’t hang onto despite having backed and supported almost every winning local rep for a decade and they still didn’t back her up. WNBA has a lot of issues but I’ve never seen a team hate their owner as much and I’m including Donald Sterling and how Dave Winfield feels about George Steinbrenner in this as well so that’s saying a lot.lagerhead wrote: ↑Sun Aug 29, 2021 7:38 pmSprecher and Tom Farley made a good team, jumped on buying data and data companies in equities, commodities and derivatives to license. No comment on Kelly.Farfromgeneva wrote: ↑Sun Aug 29, 2021 7:31 pmICE does well with corporate and other esoteric credit derivatives.lagerhead wrote: ↑Sun Aug 29, 2021 7:11 pmCME will not enter into derives license for data so no one else can use the term rate. CME is a monopoly in everything but energy, ice competes with them there.Farfromgeneva wrote: ↑Sun Aug 29, 2021 6:47 pm Hey Lagerhead if your still keeping an eye here this may be interesting.
https://www.newyorkfed.org/medialibrary ... of_Use.pdf
ARRC Best Practice Recommendations Related to Scope of Use of the Term Rate1 Background:
In 2014, the ARRC selected SOFR as its recommended replacement rate for USD LIBOR. SOFR was selected after careful consideration of alternatives, given the robust underpinning of the US Treasury repo market following an extensive public consultation and as documented in the ARRC’s Second Report. In that same report, the ARRC recognized that there could be certain conditions where adapting to an overnight rate could be more difficult and thus explicitly included a goal of producing a forward- looking term rate for use in cash products in its Paced Transition Plan. The ARRC has selected and plans to formally recommend the CME SOFR term rates (SOFR Term Rate) once the indicators are met.
This document lays out the ARRC’s recommended best practices for the use of the SOFR Term Rate in contracts. The recommendations are intended to be in line with the principles set out by the ARRC,2 that use of the SOFR Term Rate should be in proportion to the depth of transactions in the underlying derivatives market and should not materially detract from volumes in the underlying SOFR-linked derivatives transactions that are relied upon to construct the SOFR Term Rate itself over time and as the market evolves. Like all of the ARRC best practices, the extent to which any market participant decides to implement or adopt any benchmark rate is voluntary. Therefore, each market participant should make its own independent evaluation and decision about whether or to what extent any recommendation is adopted.
Market participants are encouraged to remain attuned to use of the SOFR Term Rate over time given the importance that such use continues to be proportionate to the base of transactions underlying the SOFR Term Rate, and does not materially detract from those transactions in a way that compromises the robustness of the SOFR Term Rate itself as the market evolves, as outlined in the ARRC’s principles.
Use of the SOFR Term Rate in Legacy Contracts that Have Adopted ARRC Fallback Language
The ARRC has issued recommended fallback language for market participants’ voluntary use in contracts that reference USD LIBOR, with the goal of reducing the risk of serious market disruption when LIBOR is no longer usable. The ARRC made separate recommendations of language appropriate for LIBOR-based floating rate notes, bilateral business loans, syndicated loans, securitizations, residential adjustable rate mortgages, and private student loans. These recommendations were made after widespread market consultation, which showed that the clear majority of respondents preferred to fallback to an ARRC- recommended SOFR term rate in order to support the smooth transition of legacy contracts away from LIBOR. For this reason, although the ARRC recognized that falling back to other forms of SOFR would be in line with its principles, under the recommended contract language for floating rate notes, bilateral and syndicated business loans, and securitizations, the first step of the fallback waterfall is a forward- looking, SOFR-based term rate (provided one has been recommended in the appropriate tenor) by the
1 Updated 8/27/2021 For more information see the FAQs on Best Practice Recommendations Related to Scope of Use of the Term Rate.
2 The scope of use recommendations are also in line with guidance issued by the FSB.
ALTERNATIVE REFERENCE RATES COMMITTEE
ARRC.3 Accordingly, following the formal recommendation of the SOFR Term Rate, legacy contracts that have adopted the ARRC’s fallback language without modification to the rate waterfall will, if the relevant tenor exists, fall back to the SOFR Term Rate once the contractual LIBOR replacement date occurs.
Under the legislation recently enacted by New York State, LIBOR-based instruments governed by New York law that do not provide effective fallbacks will transition to the applicable SOFR-based rate recommended by the ARRC, the Federal Reserve Board, or the Federal Reserve Bank of New York. The ARRC expects to make recommendations for the legislation that are consistent with its existing recommended fallback provisions.
Recommended Best Practices for Use of the SOFR Term Rate in New Contracts
For new contracts, the ARRC continues to recommend SOFR for all products, and as a general principle recommends that market participants use overnight SOFR and SOFR averages given their robustness, particularly in markets where we have seen that there can be successful adoption of these rates such as floating rate notes, consumer products including adjustable rate mortgages and student loans, and most securitizations. The ARRC also recommends the use of overnight SOFR and SOFR averages in cases where a party wishes to hedge in the most efficient and transparent manner. However, the ARRC also supports the use of the SOFR Term Rate in areas where use of overnight and averages of SOFR has proven to be difficult.
Specifically:
1. The ARRC supports the use of SOFR Term Rate in addition to other forms of SOFR for business loan activity —particularly multi-lender facilities, middle market loans, and trade finance loans—where transitioning from LIBOR to an overnight rate has been difficult and where use of a term rate could be helpful in addressing such difficulties. The ARRC also recognizes that the SOFR Term Rate may also be appropriate for certain securitizations that hold underlying business loans or other assets that reference the SOFR Term Rate and where those assets cannot easily reference other forms of SOFR.
2. The ARRC does not support the use of the SOFR Term Rate for the vast majority of the derivatives markets, because these markets already reference SOFR compounded in arrears and transitioning derivatives markets to the more robust overnight risk-free rates (RFRs) is essential to ensure financial stability as emphasized by the Financial Stability Board.4 The ARRC
3 ARRC-recommended language for consumer products refers to the rate recommended by the ARRC for such products. As with other products, consultations indicated that most market participants also preferred to fall back to a SOFR Term Rate if the ARRC had recommended one.
4 The FSB has stated, “Because derivatives represent a particularly large exposure to most IBORs, and because these prospective RFR-derived term rates can only be robustly created if derivatives markets on the overnight RFRs are actively and predominantly used, the FSB believes that transition of derivatives to the more robust overnight RFRs is important to ensuring financial stability.”
ALTERNATIVE REFERENCE RATES COMMITTEE
recommends that any use of SOFR Term Rate derivatives be limited to end-user facing derivatives intended to hedge cash products that reference the SOFR Term Rate. This limitation is intended to avoid use that is not in proportion to, or materially detracts from, the depth of transactions in the underlying derivatives markets that are essential to the construction of the SOFR Term Rate over time.
ARRC has recommended to cftc that a sofr yet rate can’t be used in derivatives.
ARRC pushing a SOFR and telling banks BSBY and AMERIBOR are not ARRC supported risk free rates. Tom Wipf is an ass who should have been shown the door at MS long ago. Empty suit.
Still crazy to me that ICE owns the N.Y. Stock Exchange now. I worked with them a number of years back on a receivables marketplace venture between NYSE and Bain capital that blew up spectacularly. Nobody has figured out CP or Trade finance since the financial crisis so it made sense but they had the wrong people. Hell I got a $100k fee plus some upside for setting them up with a webinar for clients, 10 direct meetings and one to two other deliverables but the margins are so think even with some bank adopters buying a few hundred million notional it isn’t a ton of rev, like the CD underwriting business short term debt only makes money for intermediaries if it’s rolled over as if longer term credit (one CFO formerly in NC now in Dallas at different bank liked to buy corporate receivables on his lunch break he told me it made him feel like a trader).
Doesn’t surprise me. I’m not a tech guy much at all but have seen my share of enterprise systems for better or worse over the years. The exchanges shouldn’t be public. I’m not suggesting they be forced into it, but it just feels like at best a public utility. And some of the management is pretty “mediocre”. Have you met the current NASDAQ CEO? I have...momma once said if you have nothing nice to say...lagerhead wrote: ↑Sun Aug 29, 2021 8:25 pmThe entire ICE IT stack for anything but equities is built on Enron technology.Farfromgeneva wrote: ↑Sun Aug 29, 2021 8:21 pmI will, she sucks. Marketing chick who married the CEO and sprayed his money all around the state to buy a seat she couldn’t hang onto despite having backed and supported almost every winning local rep for a decade and they still didn’t back her up. WNBA has a lot of issues but I’ve never seen a team hate their owner as much and I’m including Donald Sterling and how Dave Winfield feels about George Steinbrenner in this as well so that’s saying a lot.lagerhead wrote: ↑Sun Aug 29, 2021 7:38 pmSprecher and Tom Farley made a good team, jumped on buying data and data companies in equities, commodities and derivatives to license. No comment on Kelly.Farfromgeneva wrote: ↑Sun Aug 29, 2021 7:31 pmICE does well with corporate and other esoteric credit derivatives.lagerhead wrote: ↑Sun Aug 29, 2021 7:11 pmCME will not enter into derives license for data so no one else can use the term rate. CME is a monopoly in everything but energy, ice competes with them there.Farfromgeneva wrote: ↑Sun Aug 29, 2021 6:47 pm Hey Lagerhead if your still keeping an eye here this may be interesting.
https://www.newyorkfed.org/medialibrary ... of_Use.pdf
ARRC Best Practice Recommendations Related to Scope of Use of the Term Rate1 Background:
In 2014, the ARRC selected SOFR as its recommended replacement rate for USD LIBOR. SOFR was selected after careful consideration of alternatives, given the robust underpinning of the US Treasury repo market following an extensive public consultation and as documented in the ARRC’s Second Report. In that same report, the ARRC recognized that there could be certain conditions where adapting to an overnight rate could be more difficult and thus explicitly included a goal of producing a forward- looking term rate for use in cash products in its Paced Transition Plan. The ARRC has selected and plans to formally recommend the CME SOFR term rates (SOFR Term Rate) once the indicators are met.
This document lays out the ARRC’s recommended best practices for the use of the SOFR Term Rate in contracts. The recommendations are intended to be in line with the principles set out by the ARRC,2 that use of the SOFR Term Rate should be in proportion to the depth of transactions in the underlying derivatives market and should not materially detract from volumes in the underlying SOFR-linked derivatives transactions that are relied upon to construct the SOFR Term Rate itself over time and as the market evolves. Like all of the ARRC best practices, the extent to which any market participant decides to implement or adopt any benchmark rate is voluntary. Therefore, each market participant should make its own independent evaluation and decision about whether or to what extent any recommendation is adopted.
Market participants are encouraged to remain attuned to use of the SOFR Term Rate over time given the importance that such use continues to be proportionate to the base of transactions underlying the SOFR Term Rate, and does not materially detract from those transactions in a way that compromises the robustness of the SOFR Term Rate itself as the market evolves, as outlined in the ARRC’s principles.
Use of the SOFR Term Rate in Legacy Contracts that Have Adopted ARRC Fallback Language
The ARRC has issued recommended fallback language for market participants’ voluntary use in contracts that reference USD LIBOR, with the goal of reducing the risk of serious market disruption when LIBOR is no longer usable. The ARRC made separate recommendations of language appropriate for LIBOR-based floating rate notes, bilateral business loans, syndicated loans, securitizations, residential adjustable rate mortgages, and private student loans. These recommendations were made after widespread market consultation, which showed that the clear majority of respondents preferred to fallback to an ARRC- recommended SOFR term rate in order to support the smooth transition of legacy contracts away from LIBOR. For this reason, although the ARRC recognized that falling back to other forms of SOFR would be in line with its principles, under the recommended contract language for floating rate notes, bilateral and syndicated business loans, and securitizations, the first step of the fallback waterfall is a forward- looking, SOFR-based term rate (provided one has been recommended in the appropriate tenor) by the
1 Updated 8/27/2021 For more information see the FAQs on Best Practice Recommendations Related to Scope of Use of the Term Rate.
2 The scope of use recommendations are also in line with guidance issued by the FSB.
ALTERNATIVE REFERENCE RATES COMMITTEE
ARRC.3 Accordingly, following the formal recommendation of the SOFR Term Rate, legacy contracts that have adopted the ARRC’s fallback language without modification to the rate waterfall will, if the relevant tenor exists, fall back to the SOFR Term Rate once the contractual LIBOR replacement date occurs.
Under the legislation recently enacted by New York State, LIBOR-based instruments governed by New York law that do not provide effective fallbacks will transition to the applicable SOFR-based rate recommended by the ARRC, the Federal Reserve Board, or the Federal Reserve Bank of New York. The ARRC expects to make recommendations for the legislation that are consistent with its existing recommended fallback provisions.
Recommended Best Practices for Use of the SOFR Term Rate in New Contracts
For new contracts, the ARRC continues to recommend SOFR for all products, and as a general principle recommends that market participants use overnight SOFR and SOFR averages given their robustness, particularly in markets where we have seen that there can be successful adoption of these rates such as floating rate notes, consumer products including adjustable rate mortgages and student loans, and most securitizations. The ARRC also recommends the use of overnight SOFR and SOFR averages in cases where a party wishes to hedge in the most efficient and transparent manner. However, the ARRC also supports the use of the SOFR Term Rate in areas where use of overnight and averages of SOFR has proven to be difficult.
Specifically:
1. The ARRC supports the use of SOFR Term Rate in addition to other forms of SOFR for business loan activity —particularly multi-lender facilities, middle market loans, and trade finance loans—where transitioning from LIBOR to an overnight rate has been difficult and where use of a term rate could be helpful in addressing such difficulties. The ARRC also recognizes that the SOFR Term Rate may also be appropriate for certain securitizations that hold underlying business loans or other assets that reference the SOFR Term Rate and where those assets cannot easily reference other forms of SOFR.
2. The ARRC does not support the use of the SOFR Term Rate for the vast majority of the derivatives markets, because these markets already reference SOFR compounded in arrears and transitioning derivatives markets to the more robust overnight risk-free rates (RFRs) is essential to ensure financial stability as emphasized by the Financial Stability Board.4 The ARRC
3 ARRC-recommended language for consumer products refers to the rate recommended by the ARRC for such products. As with other products, consultations indicated that most market participants also preferred to fall back to a SOFR Term Rate if the ARRC had recommended one.
4 The FSB has stated, “Because derivatives represent a particularly large exposure to most IBORs, and because these prospective RFR-derived term rates can only be robustly created if derivatives markets on the overnight RFRs are actively and predominantly used, the FSB believes that transition of derivatives to the more robust overnight RFRs is important to ensuring financial stability.”
ALTERNATIVE REFERENCE RATES COMMITTEE
recommends that any use of SOFR Term Rate derivatives be limited to end-user facing derivatives intended to hedge cash products that reference the SOFR Term Rate. This limitation is intended to avoid use that is not in proportion to, or materially detracts from, the depth of transactions in the underlying derivatives markets that are essential to the construction of the SOFR Term Rate over time.
ARRC has recommended to cftc that a sofr yet rate can’t be used in derivatives.
ARRC pushing a SOFR and telling banks BSBY and AMERIBOR are not ARRC supported risk free rates. Tom Wipf is an ass who should have been shown the door at MS long ago. Empty suit.
Still crazy to me that ICE owns the N.Y. Stock Exchange now. I worked with them a number of years back on a receivables marketplace venture between NYSE and Bain capital that blew up spectacularly. Nobody has figured out CP or Trade finance since the financial crisis so it made sense but they had the wrong people. Hell I got a $100k fee plus some upside for setting them up with a webinar for clients, 10 direct meetings and one to two other deliverables but the margins are so think even with some bank adopters buying a few hundred million notional it isn’t a ton of rev, like the CD underwriting business short term debt only makes money for intermediaries if it’s rolled over as if longer term credit (one CFO formerly in NC now in Dallas at different bank liked to buy corporate receivables on his lunch break he told me it made him feel like a trader).
Not missing much. For someone who’s had as much airtime as she has lately she’s terrible in front of audiences. Doesn’t look close to comfortable in her skin in one on ones, small groups or larger. Just seems like a spazz who kisses a** and doesn’t want to rock any boats but play cheerleader all day and night.