The Secured Overnight Financing Rate (SOFR) is produced by the Federal Reserve Bank of New York (New York Fed) in cooperation with the Office of Financial Research. While not "owned" in the traditional sense like a private company, these institutions are responsible for its calculation, production, and publication.
Understanding SOFR's Origin and Administration
SOFR serves as a key benchmark interest rate, reflecting the cost of borrowing cash overnight collateralized by U.S. Treasury securities. Its development and widespread adoption were driven largely by the global transition away from LIBOR (London Interbank Offered Rate).
Key Entities Responsible for SOFR:
| Entity | Role in SOFR Production | Description |
|---|---|---|
| New York Fed | Primary Producer and Publisher | The New York Fed, a regional bank of the Federal Reserve System, is responsible for the daily calculation and publication of SOFR. It publishes the rate each business day at approximately 8:00 a.m. Eastern Time. |
| Office of Financial Research | Collaborating Entity | This office works in cooperation with the New York Fed in the production of SOFR, contributing to its design and ensuring its integrity as a robust financial benchmark. |
| Alternative Reference Rates Committee (ARRC) | Industry-Led Stakeholder Group | While not a producer, the ARRC, convened by the New York Fed, played a crucial role in identifying SOFR as the preferred alternative to LIBOR and supporting its adoption across the U.S. financial system. It provides recommendations and best practices for SOFR implementation. |
How SOFR is Produced
SOFR is calculated based on observable transactions in the overnight Treasury repurchase agreement (repo) market. This makes it a robust and transparent rate, less susceptible to manipulation compared to survey-based benchmarks.
- Data Collection: The New York Fed collects data on qualifying overnight repo transactions from various sources.
- Calculation: Using a volume-weighted median methodology, the New York Fed calculates the SOFR based on these transactions.
- Publication: The final rate is published daily, providing a reliable and accessible reference point for financial contracts and instruments.
Why SOFR Matters
SOFR has become the most widely used benchmark for a vast array of financial products, including:
- Loans: Many variable-rate loans are now indexed to SOFR.
- Bonds: Floating-rate notes and other debt instruments frequently use SOFR.
- Derivatives: Interest rate swaps and other derivatives contracts reference SOFR for pricing and settlement.
Its broad adoption is critical for the stability and integrity of the global financial system, providing a robust and transparent reference rate for trillions of dollars in financial instruments.
