In a novel trade deal, JPMorgan uses CME Group's SOFR Forward Rate

CME Group

JPMorgan Chase & Co. completed an innovative trade-finance transaction for the Secured Overnight Financing Rate that was related to CME Group Inc.'s forward rates, indicating a step ahead in the adoption of the Libor replacement JPMorgan stated in a statement that the trade, which was conducted between two of the bank's clients, was the first fully automated deal in that part of the firm's business that was related to term SOFR.

It was between Mumbai, India-based Reliance Industries Ltd. and a Singapore-based energy firm, and it was connected to the CME Group Inc.'s 90-day forward for SOFR.The trade was completed by JPMorgan on Aug. 5, only days after officials monitoring the United States' move away from the London interbank offered rate formally supported the CME's series of forward-term SOFR standards.JPMorgan has a "strong" pipeline of similar transactions through next year, according to the company. When it comes to business lending, US government regulators are concerned that banks are not transitioning to Libor substitutes quickly enough.“

This is the first automated trade of this type that is scalable and thus allows us to show there is a brave new world outside of Libor,” said Stuart Roberts, global head of trade at JPMorgan. “That will cut the global systemic interbank risk that was systemic in Libor. Having term reference rates that are based off the benchmark in the U.S. might also make the Eurodollar market significantly less volatile.” 

The SOFR forward rates received official approval just before the year-end deadline for ditching Libor in favour of fresh accords. This is likely to offer the standards an advantage in the face of growing competition from new reference-rate providers vying for a piece of the post-Libor pie.Despite the regulators' push for a move away from Libor, it is still related to trillion-dollar derivative contracts, loans, and other products. Deals including SOFR have been sluggish to emerge, with many predicting that the addition of term rates will hasten the process.“We believe that Term SOFR, published by Chicago Mercantile Exchange, holds significant promise as an alternate term benchmark rate and this transaction is likely to pave the way for many more to come,” V. Srikanth, joint chief financial officer at Reliance Industries said in a statement regarding the trade with JPMorgan.




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