SEC’s Gensler supports SOFR

Federal Issues LIBOR SEC ARRC SOFR

On September 20, SEC Chair Gary Gensler issued remarks before the Alternative Reference Rates Committee (ARRC) regarding the transition from the London Interbank Offered Rate (LIBOR) to a “preferable” Secured Overnight Financing Rate (SOFR). Gensler expressed his concerns for the Bloomberg Short-Term Bank Yield Index (BSBY), citing that BSBY's flaws are similar to those of LIBOR, including that “[b]oth benchmarks are based upon unsecured, term, bank-to-bank lending.” He also pointed out that the BSBY term is “underpinned primarily by trades of commercial paper and certificates of deposit issued by 34 banks,” and “the median trading volume behind three-month BSBY is less than $10 billion per day.” In expressing his support for SOFR, Gensler stated that SOFR is based on an approximate trillion-dollar market.