The Federal Reserve Bank of New York (New York Fed) announced it will begin publishing the secured overnight financing rate (SOFR) inclusive of two proposed modifications on November 25, 2024.
Both changes involve the treatment of transactions within the centrally-cleared DVP segment of the repo market, which is the largest of the three market segments incorporated into the calculation of SOFR. Since this segment is only used in the calculation of SOFR, these changes will have no impact on the Tri-party General Collateral Rate or Broad General Collateral Rate.
The first modification will remove transactions between affiliated institutions in the centrally-cleared DVP segment of the repo market. The New York Fed excludes transactions between affiliated institutions when relevant and when the data to make such exclusions are available. The transition to using the US Department of the Treasury’s Office of Financial Research (OFR)’s collection of centrally-cleared repo transactions in the production of SOFR now provides the counterparty data necessary to assess affiliation in the centrally-cleared DVP segment.
The second modification will adjust the mechanism applied to mitigate the influence of “specials” transactions, by removing a consistent 20% of the lowest-rate transaction volume from the centrally-cleared DVP segment. This will eliminate the day-to-day variability in the share of centrally-cleared DVP activity removed from the calculation and ensure that SOFR remains a robust benchmark, particularly as the share of Treasury repo activity being centrally cleared continues to increase.