Insight & Analysis

Press Release: First electronic SOFR vs Fed funds compression trade executed via Bloomberg SEF

Published: Nov 2020

12th November 2020 – New York – Today, Bloomberg announced that the first electronic SOFR versus Effective Federal Funds Rate (“EFFR”) basis swap compression trade was executed on the Bloomberg SEF (“BSEF”). The participants successfully executed a 10-year cleared swap unwind (equal and opposite to an original cleared position), using request-for-quote through Bloomberg’s list trading tool, BOLT, to achieve compression of the original position at CME, where the swap was cleared.

Newspaper press release

Bloomberg supports trading on coupon, basis spread and Net Present Value (NPV), allowing clients to rebalance portfolios from LIBOR to Risk Free Rates. These workflows are complemented by portfolio analytics to calculate margin costs, analyze key rate risk and evaluate what-if scenarios all seamlessly integrated with BOLT.

Clients have had access to trade USD SOFR outright and basis product suite electronically since 2018, alongside offerings in other major currency Risk Free Rate products set to replace LIBOR as market standard.

“The Libor transition requires a synchronized effort, which is essential to a sound and resilient financial system,” said Steven Doherty, director, public investments, Northwestern Mutual. “Executing the first electronic trade using this new enhanced functionality creates efficiencies and supports our goal of maximizing long-term investment returns for our policyowners, while maintaining our unsurpassed financial strength.”

“Libor transition is one of the most important changes in the Rates and FX market today. Wells Fargo’s Macro sales and trading team will remain dedicated to supporting this critical evolution for our clients, including providing technology solutions for efficient execution of SOFR risks,” said James Wang, Global Head of Institutional Interest Rates & Foreign Exchange Sales at Wells Fargo.

“Being the first to market with our SOFR compression trading offering is a clear demonstration of Bloomberg’s commitment to support market participants looking to manage their IBOR exposure,” said Nicholas Bean, Head of Electronic Trading Solutions at Bloomberg. “Clients who trade on Bloomberg continue to have access to deep liquidity alongside the post trade efficiencies that come with electronic execution.”

“Compression is a crucial tool for cleared market participants, and the ability to compress SOFR versus EFFR trades is of particular significance for our clearing members who are looking to boost operational and capital efficiency,” said Sunil Cutinho, President, CME Clearing. “We are pleased to provide this service to clients through services such as Bloomberg SEF and BOLT.”

BSEF provides its participants with electronic trading for CDS, IRS, and FX derivatives built on the core technology behind Bloomberg’s trading platforms, which are used by more than 1,000 global institutions today.

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