Secured Overnight Financing Rate and Beyond: The New Benchmark - Expectations and Implications

SEPTEMBER 2018
SECURED OVERNIGHT
FINANCING RATE AND
BEYOND
THE NEW BENCHMARK:
EXPECTATIONS AND
IMPLICATIONS

CONTENTS
Transition Timeline • Transition timeline laid out by the U.S. regulators for SOFR phase-in
SOFR Overview • Features of the new benchmark
Criticism of SOFR
SOFR vs. LIBOR
Why Replace LIBOR?
• Overview of the shortcomings of LIBOR
• Evaluation of SOFR and LIBOR against the benchmark standards set by
the International Organization of Securities Commissions (IOSCO)
• Summary of industry criticism against the new benchmark rate
Case for a
New
Benchmark
2
Copyright © 2018 Accenture. All rights reserved. 2
Impact Summary • Brief summary of the nature of impact for each key area
Impact Heatmap
• Snapshot of key areas impacted by SOFR within buy- and sell-side
institutions
Next Steps • Getting ready for SOFR adoption
Impact
Assessment
3
Global Landscape • A snapshot of alternative reference rate for major world currenciesContext1

SECURED OVERNIGHT FINANCING RATE (SOFR)
The 2012 London Inter-Bank Offered Rate (LIBOR) rigging scandal brought the concerns over the structural weaknesses
of this benchmark into the mainstream. The Alternative Reference Rates Committee (ARRC) was convened in 2014 to
establish an alternative benchmark, and on June 22, 2017, the selection of SOFR as the preferred alternative was made.
SOFR represents the broadest set of REPO rates and is composed of the following segments:1
OVERVIEW
TGCR Tri-party General Collateral Rate: Based on trade-level tri-party data
BGCR Broad General Collateral Rate: TGCR + General Collateral Financing (GCF) repo
SOFR Secured Overnight Financing Rate: BGCR + Fixed Income Clearing Corporation (FICC)-cleared bilateral repo
+
+
What’s Changing?
• IBORs are being phased out by 2021 – denominated in USD, GBP,
EUR, JPY, and CHF2
• Key impact areas: Sales, Trading, Finance, Risk, Legal and
Technology
• Impact dimensions: liquidity; hedging and accounting; market,
operational and conduct risk, and client outreach
• For benchmark reform to be successful, there would need to be
broad market adoption of the alternative risk-free rates such as
SOFR, SONIA and others
Why Act Now?
• Andrew Bailey, Chief Executive of the FCA, believes “… the pace
of that transition is not yet fast enough.” (July 12, 2018)3
• LIBOR replacement will impact USD 370 trillion in existing
contracts that must be amended globally4
• How each bank will be impacted is uncertain, and multiple
scenarios are possible
• Significant change management efforts required for effective
transition. Given the scale, project mobilisation and impact
assessments should mobilize as soon as possible
Note: Please see Legend slide for definition of acronyms
1 Introducing the Secured Overnight Financing Rate: (SOFR). FRBNY, November 2, 2017: https://www.newyorkfed.org/medialibrary/media/newsevents/speeches/2017/Frostpresentation.pdf
2 IBOR Global Benchmark Transition Report June 2018.ISDA, AFME, SIFMA, ICMA, 2018: http://assets.isda.org/media/85260f13-66/406780f5-pdf
3 Interest rate benchmark reform: transition to a world without LIBOR. FCA, July 12, 2018: https://www.fca.org.uk/news/speeches/interest-rate-benchmark-reform-transition-world-without-libor
4 The $370 Trillion Benchmark Challenge. ISDA, February 5, 2018: https://www.isda.org/2018/02/05/the-370-trillion-benchmark-challenge/

Since the 2012 LIBOR fall-out, efforts are being made globally to find suitable reference rates for all major currencies.
Below is a summary of the global landscape.
GLOBAL LANDSCAPE
Current Reference
Benchmark
Administrator Working Group
Planned Reference
Benchmark
Borrowing Type O/N Rate Term Rate
USD LIBOR¹
Federal Reserve Bank of New
York
Alternative Reference Rate
Committee
SOFR Secured Available by Q2 2018 To be established
CHF LIBOR² SIX Swiss Exchange
National Working
Group on Swiss Franc
Reference Rates
SARON Secured Available To be established
GBP LIBOR³ Bank of England
Working Group on Sterling Risk-
Free Rates
SONIA Unsecured Available To be established
JPY LIBOR⁴ Bank of Japan
Study Group on Risk-free
Reference Rates
TONAR Unsecured Available To be established
EURIBOR⁵ European Central Bank Newly established (July 2018) To be defined To be defined To be established To be established
• The proposed alternative benchmarks are all overnight
rates.
• The rate also cover maturities running from overnight to
many years in the future (term rates), as LIBOR currently
provides.
• The unsecured cost of a term loan is especially important to
the Buy-side.
• EONIA / EURIBOR is currently not compliant with the
European Union Benchmark Regulation6
• After the EONIA redefinition was discarded, the ECB is
viewed as best positioned (due to their comprehensive
money market data) to create a robust (overnight)
reference index6
• A working group has been established but timeline is tight
as not only the production of a new rate is challenging but
also the transition of contracts4
• Some of the overnight rates are unsecured with only a very
small credit spread and some are secured and exclude
credit risk completely
• Especially in times of stress, secured and unsecured rates
behave very differently – secured lending dries up.
• The economic difference to LIBOR, as well as the structural
differences among the secured overnight rates
corresponding to various currencies raise additional
complexity
Term StructuresEUR Alternative4 Economic Differences
1 Secured Overnight Financing Rate Data (Federal Reserve Bank of New York): https://apps.newyorkfed.org/markets/autorates/sofr
2 The National Working Group on Swiss Franc Reference Rates (Swiss National Bank): https://www.snb.ch/en/ifor/finmkt/fnmkt_benchm/id/finmkt_reformrates
3 SONIA Benchmark (Bank of England): https://www.bankofengland.co.uk/markets/sonia-benchmark
4 Study Group on Risk-Free Reference Rates – Payments and Markets (Bank of Japan): https://www.boj.or.jp/en/paym/market/sg/index.htm
5 Working group on euro risk-free rates (European Central Bank): https://www.ecb.europa.eu/paym/initiatives/interest_rate_benchmarks/WG_euro_risk-free_rates/html/index.en.html
6 EONIA unlikely to meet the requirements of the European Benchmark Regulation (Linklaters): https://www.linklaters.com/en/insights/publications/2018/february/eonia-unlikely-to-meet-the-requirements-of-the-european-benchmark-regulation

In 2017, the U.K.’s Financial Conduct Authority (FCA) announced that banks will continue to support the LIBOR
benchmark until the end of 2021, at which point a transition can be made to SOFR as an alternative benchmark rate.1
TRANSITION TIMELINE FOR SOFR (USD)
• Despite significant improvements (e.g., submission controls, oversight committee) to LIBOR since 2013, the absence of an active
underlying market poses in our view challenges to base rates on actual transactions
• The ARRC has proposed SOFR, which is based on the overnight collateralized rate of daily repo transactions. SOFR is aligned
with the International Organization of Securities Commission (IOSCO) Principles for Financial Benchmarks
Timeline Dependencies
• Establishing deep
derivative markets to
define the longer
maturity points on the
benchmark curve
• Global adoption of
SOFR as alternative
benchmark rate and
timeline harmonization
• Regulatory guidance
20182 2019 2020 2021
U.S. FED
Publishes
SOFR
Infrastructure
For futures and/or
Overnight Index
Swap (OIS)
trading
SOFR
Trading
Trading begins in
futures and OIS
(bilateral /
uncleared)
that reference
SOFR
Central
Counterparty
(CCP) Benchmark
Options
CCP Benchmark
Creation of a term reference rate based
on SOFR-derivatives markets
SOFR
Trading
Trading begins in
cleared OIS that
reference SOFR
CCPs allow market
participants to select
reference rate
CCPs no longer accept
new clearing with EFFR
as PAI and discounting
Copyright © 2018 Accenture. All rights reserved. 5Note: Please see Legend slide for definition of acronyms
1 The future of LIBOR (Financial Conduct Authority): https://www.fca.org.uk/news/speeches/the-future-of-libor
2 The Alternative Reference Rates Committee (AARC): https://www.newyorkfed.org/medialibrary/microsites/arrc/files/2017/OConnorpresentation.pdf

LIBOR represents the unsecured inter-bank lending market which is experiencing reduced
liquidity as market players switch to secured lending post 2007 crisis (around $500bn during
the Financial Crisis to $68bn in February 2018).2
Diminishing Market
Depth
Today, LIBOR is linked to more than $370 trillion in financial instruments1 and has been used as the reference rate for
over 30 years. However, the drying liquidity in the underlying markets, the lack of transaction traceability, and the
regulatory landscape are driving the shift to an alternative reference rate.
WHY REPLACE LIBOR?
LIBOR is sustained by considerable use of “expert judgment” among the panel banks.3 The
resultant subjectivity undermines the transparency of the benchmark.
Subjectivity
The growing regulatory pressure and stringent oversight on LIBOR may result in departure
of participating banks from the panel. Also, the U.K.’s FCA has also indicated its commitment
to replace LIBOR with an alternative reference rate by 2021.4
Future Uncertainty
1 The $370 Trillion Benchmark Challenge. (ISDA): https://www.isda.org/2018/02/05/the-370-trillion-benchmark-challenge/
2 The Fed is trying to replace a decades-old benchmark rate — here's what you need to know (Business Insider): https://www.businessinsider.com/a-new-benchmark-rate-is-replacing-libor-heres-what-you-need-to-know-2018-4
3 The transition from LIBOR (International Capital Market Association): https://www.icmagroup.org/assets/documents/Regulatory/Primary-Markets/PM-Topics/Q1-2018-article---The-transition-from-LIBOR.pdf
4 The future of LIBOR (Financial Conduct Authority): https://www.fca.org.uk/news/speeches/the-future-of-libor

SOFR VS. LIBOR
In order to evaluate the proposals for alternative reference rates, the ARRC established five criteria in alignment with
the principals for financial benchmarks defined by the IOSCO.
ARRC
Criteria
SOFR LIBOR
Benchmark
Quality
• 2017 H1 underlying transactions ~$800b1
• Fully (collateralized) transaction based and encompasses
a robust underlying market / volume
• Treasury repo markets seen as a resilient and active
source of wholesale and interbank funding
• FRBNY released 3 years of historical data for SOFR and
is considering ways to release longer history
• Suffering from lack of liquidity in the interbank markets
whose pricing data are used to compute it (2017 H1 3-
month LIBOR volume ~$500m*)
• Calculated daily in 5 currencies (USD, EUR, GBP, JPY,
CHF) and for maturities ranging from overnight to 1 year
Methodology • Based on tri-party market, GCF market and DVP bilateral
repo market. Uncleared bilateral repo is not included
• SOFR rates provide hypothetical “perfect foresight”
• Clearly defined data filters / rules and integrity controls for
transparency
• Theoretical rates formulated from pricing contributions by
17 panel banks (using “expert judgment” rather than
transaction data), thus easier to manipulate
• LIBOR value for the same date is a reflection of market
expectations
Accountability • Rates are calculated using actual market transaction for
traceability and accountability
• The inherent element of subjectivity (expert judgment)
results in compromised accountability
Governance • Governance and oversight is the cornerstone of the new
benchmark
• Governance and oversight was improved post 2012
LIBOR scandal
Ease of
Implementation
• A 6-step Paced Transition Plan was proposed by ARRC to
i. establish infrastructure
ii. develop market for futures and uncleared OIS
iii. develop market for cleared OIS
iv. allow a choice for PAI / discounting based on SOFR
v. establish liquidity and adequate historical data for risk
modeling
vi. establish a term reference rate
• Trading activity in CME Group Inc’s SOFR futures and
OIS will help establish long term curve points
• LIBOR is well established as the primary benchmark for
past 30+ years
Criteria Definitions2
1. Benchmark Quality: Degree to
which the benchmark design
permits the integrity and
continuity of the rate
2. Methodological Quality:
Degree to which the benchmark
construction could satisfy
IOSCO Principles (e.g.,
soundness, standardization,
transparency, availability of
historical data)
3. Accountability: Evidence of
process to allow compliance
with the IOSCO Principles
4. Governance: Enhanced
governance structure to promote
the integrity of the benchmark
5. Ease of Implementation: Ease
of transition i.e., hedging /
trading market and term market
2 The Alternative Reference Rates Committee:
https://www.newyorkfed.org/medialibrary/microsites/arrc/files/20
17/OConnorpresentation.pdf
1 Second Report - The Alternative Reference Rates Committee (ARRC): https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2018/ARRC-Second-report

CRITICISM OF SOFR
SOFR, while promising better transparency and market representation, still has in our view a few areas that would need
improving before it replaces LIBOR as the gold standard benchmark for global financial markets.
Rates Volatility
SOFR has exhibited considerable high volatility during the initial few weeks of publishing. This is likely caused by the overnight repo rate fluctuation and is
expected to steady over time with the aggregation of data.
Term Structure
SOFR is an overnight rate while LIBOR is a term benchmark. Longer maturities would require an appropriate forward curve supported by established
derivative markets. Until a deeply liquid market is established, the adoption of SOFR as the primary benchmark is expected to stay under debate.
Controls and
Transparency
New York Fed announced during the third week of publishing of SOFR rates that certain out of scope repo transactions were erroneously included in the
SOFR calculation.1 Before SOFR claims the status of global USD benchmark, and to favor market confidence, the controls and data processes around
SOFR should be further strengthened.
Spread
Variation
SOFR spreads (SOFR-EFFR and SOFR-LIBOR) are heavily dependent on U.S. monetary policy. On average, the spread between SOFR and LIBOR is
23.7 basis points; and it nearly doubled between 2014 and 2017.2 Additionally SOFR volatility may occasionally be large enough to impact the month-
average SOFR rate.
Margining and
Discounting
There are significant variations in methods for margin interest calculations and discounting of SOFR-based products among clearing houses. CME Clearing
is using SOFR while LCH Limited is using Fed funds rate for price alignment interest and discounting.3
Credit Risk
Premium
SOFR is a risk free rate that does not include the credit risk premium. This may lead to asymmetric rates on banks assets and liabilities during a credit
crisis.
Liquidity of
Underlying
Markets
The repo markets underlying SOFR are also being questioned. GCF repos, that are included in SOFR, have declined 84% since 2011; whereas the
bilateral repo market, not included in SOFR, is on the rise.4 Mandatory clearing of bilateral repos is likely to address the problem, but it is facing push back
from industry participants.
Transition
Timeline
The transition timeline from LIBOR to SOFR is criticized by some market participants for being aggressive. LIBOR is a mature benchmark supporting
several trillion dollars in existing contracts. It is also well embedded in the risk management, regulations, and legal and compliance within the global financial
system (e.g. Basel accord, ISDA, etc.). The transition should occur naturally and in a phased manner rather than forced on to the system.
1 U.S. Libor Replacement, Two Weeks After Debut, Has Some Issues (Bloomberg): https://www.bloomberg.com/news/articles/2018-04-16/u-s-libor-replacement-two-weeks-after-debut-has-some-issues
2 What is SOFR? (CME Group): https://www.cmegroup.com/education/files/what-is-sofr.pdf
3 Clearers diverge on SOFR swaps discounting (Risk.net): https://www.risk.net/derivatives/5733856/clearers-diverge-on-sofr-swaps-discounting
4 Libor’s sunset sees US repo market cast a longer shadow (Risk.net): https://www.risk.net/derivatives/5320981/libors-sunset-sees-us-repo-market-cast-a-longer-shadow

CHALLENGES AND IMPACTS
The replacement of LIBOR poses multiple challenges to financial institutions. The impact of these challenges can be
grouped into 3 key areas.
Liquidity is paramount to broad market adoption of new rates as a
replacement benchmark. This is most important for new
products.
Liquidity
Client Outreach
Hedging
Risk
Scale
Product and Trade
Identification
CHALLENGES
All changes should be communicated to clients (cash and
derivatives). This is a significant process, requiring agreement on
all trades.
Analysis and testing is required on hedging levels under potential
new benchmarks.
Large scale changes to rate curves, models and documentation
poses significant operational and conduct risk.
The scale of the transition (USD 370 trillion in derivatives)1
impacts a large client base, product range and numerous
geographies, with different timelines for change.
Identify all existing and new contracts impacted by LIBOR rates
across derivates, cash products and lending. Determine all fall-
back positions.
AREAS OF GREATEST IMPACT
Business & Legal
Business profitability may change and the transition
to new contracts should have an impact on line of
business profit or loss. Legal should oversee contract
renegotiations and changes to standardized
documentation.
Finance & Risk
Internal models, risk exposures, hedge accounting
(designation of hedged item and hedging instrument)
and external disclosure should require changing.
Infrastructure and systems should be suitable for
the new benchmarks and the transition.
IT & Operations
1 The $370 Trillion Benchmark Challenge (ISDA): https://www.isda.org/2018/02/05/the-370-trillion-benchmark-challenge/

The introduction and adoption of SOFR is expected to significantly impact a firm’s business strategies, products,
policies, processes and operations, data, and technology.
IMPACT HEATMAP
Impact Areas
Enterprise Strategy 1. Corporate / Business Unit (BU) Strategy 2. Product Development 3. Profitability / Performance Management
Ops
7. Cross Product Processing
7.1 Confirmations
7.5 Clearing and Settlement 7.6 Revenue Accounting and Control
7.2 Cash Management and Payments
7.7 Collateral Management
7.3 Inventory Management
7.8 Trade Lifecycle Management
7.4 Margining
9. Finance
9.1 Business Decision Support
9.2 Financial Control
9.3 External Reporting
9.4 Cost Accounting / Reporting
8. Asset Liability Mgmt.
8.1 Funds Transfer Pricing
8.2 Balance Sheet Management
8.3 Controlling / Reporting
CoreCorp.
10. Risk Management
10.1 Market Risk
10.2 Credit Risk
10.3 Liquidity Risk
10.4 Operational / Other Risks
Data&Tech
12. Technology
12.1 IT Strategy
12.2 Application Development
12.3 Application Management
12.4 Infrastructure
13. Data
13.1 Data Strategy
13.2 Meta- / Master-Data Mgmt.
13.3 Data Lineage
13.4 Data Warehouse / Data Lake
CoreBusinessUnits
4. Trading 5. Corporate Finance
Alternative
Finance
(PE/VC)
Debt
Capital
Markets
Equity
Capital
Markets
5.1 Advisory
5.2 Issuance
5.3 Complex Finance
6. Lending
Working
Capital
Finance
Term
Finance
Structured
Finance
6.1 Origination (Relationship Management)
6.2 Pricing
6.3 Disbursement and Repayment
6.4 Collection
11. Oversight, Legal, Reg
11.1 Compliance
11.2 Audit
11.3 Legal
High Impact Moderate Impact Low or No Impact
A
B C D
E
GF
11.4 Regulatory
Equities
Fixed
Income
Structured
Products
IR & Credit
Derivatives
FX & Money
Markets
Equity
Derivatives
4.2 Trading Risk Management
4.1 Product Structuring
4.3 Pricing
4.4 Quotes and Orders
4.5 Research
Commodi-
ties

IMPACT SUMMARY (1/2)
Enterprise Strategy
1. Corporate / BU Strategy ▪ Likely shift in competitive landscape and market equilibrium (established as a result of stabilized pricing over the past years) during the
initial few periods as market players focus on introducing SOFR-based products
M
2. Product Development ▪ New lending and investment product offerings (primarily wholesale) based on SOFR H
3. Profitability / Performance
Management
▪ Buy-side: Revised / new pricing strategies and profitability targets as the spreads are moved due to new SOFR benchmark rate
▪ Sell-side: Revised fee and commissions structure for new products and services
▪ Potentially tightened margins as SOFR benchmark is higher than LIBOR (Avg. 23.7 bps for O/N – varies with US monetary policy1)
▪ Revised profit attribution process and performance benchmarks considering the SOFR baseline and volatility
M
Core Business Units
4. Trading ▪ 4.1 Product Structuring – New product offerings (vanilla and structured) based on SOFR H
▪ 4.2 Trading Risk Management – Updated trading risk models (settlement and pre-settlement) and associated processes H
▪ 4.3 Pricing – Revised / new pricing models for vanilla and derivative products to include SOFR-driven pricing variables H
▪ 4.4 Quotes and Orders – Updated quotes and order screens and processes to support SOFR-based products M
▪ 4.5 Research – Updated models and assumptions and curve construction impacting current research approaches M
5. Corporate Finance ▪ 5.1 Advisory – Capital structuring strategies impacted by the new short-term funding standard H
▪ 5.2 Issuance – Opportunity to offer new liquidity management tools and capital market instruments leveraging the SOFR H
6. Lending ▪ 6.1 Origination (Relationship Management) – Potentially higher than normal customer attrition during the initial periods (especially in
retail sector) due to customers’ “stickiness” to legacy LIBOR standard
H
▪ 6.2 Pricing – Opportunity to offer more “relevant” pricing for secured loan using SOFR (provides better representation of the secured
lending market)
H
Operations
7.1 Confirmations ▪ Updated confirmations process (paper and electronic / SWIFT) to support the SOFR-based products H
7.4 Margining ▪ Uncertainty over margining methods used by clearing houses for SOFR-based products require strategies to manage the variances H
7.5 Clearing and Settlement ▪ Updated SWIFT messages / protocols to process the clearing and settlement of SOFR-based trades H
7.6 Revenue Accounting and
Control
▪ Pricing and valuation volatility resulting from the publishing time difference between LIBOR and SOFR (Daily SOFR is published at 8 am
NY time; whereas LIBOR is published at 4pm London Stock Market close)
H
7.7 Collateral Management ▪ Updated collateral agreements and credit support annexes (CSAs) (please see 11.3 Legal). New valuation models for SOFR-based
collaterals and supporting processes (allocations, valuations, inventory aggregation etc.)
M
A
C
B
D
E
1 What is SOFR? (CME Group): https://www.cmegroup.com/education/files/what-is-sofr.pdf

IMPACT SUMMARY (2/2)
Core Corporate Functions
8. Asset and Liability
Management
▪ 8.1 Funds Transfer Pricing – Revised Funds Transfer Pricing (FTP) models to address the product-specific add-ons (spreads) under
SOFR
H
▪ 8.2 Balance Sheet Management – Updated sensitivity models to evaluate the balance sheet impact of SOFR fluctuations M
9. Finance ▪ 9.1 Business Decision Support – New CFO strategies to manage the spreads and P&L volatility resulting from SOFR (which is observed
to be more volatile than LIBOR during the first 3 months of publishing)
H
10. Risk Management ▪ Revised risk policies, risk limits, portfolio review and control processes to cope with the changing products / BU risk profile under SOFR H
▪ 10.1 & 10.2 Market Risk and Credit Risk – Updated / new internal and regulatory models for credit and market risk as LIBOR
(unsecured) and SOFR (secured) represent different market segments as well as corresponding exposure to credit risk
H
▪ 10.3 Liquidity Risk – New metrics for funding and market liquidity management and sensitivity analysis to assess the impact of SOFR M
11. Oversight, Legal,
Regulatory
▪ 11.1 Compliance – Revised / new internal controls, reconciliation, and review procedures to address the procedural, data, and
technological nuances associated with SOFR
M
▪ 11.2 Audit – Updated audit programs to address and certify the controls and process driven by SOFR M
▪ 11.3 Legal – Re-papered legal documentation (standard contracts, term sheets, ISDA / CSA agreements,1 and Service Level
Agreements (SLAs)
M
▪ 11.4 Regulatory – Interpretation and impact assessment of any potential regulatory requirements as a result of SOFR adoption H
Data and Technology
12. Technology ▪ 12.1 IT Strategy – Assessment of implications of SOFR and prioritization of associated IT initiatives M
▪ 12.2 Application Development – Extension of system capabilities (front office, back office, and middle office systems) to handle SOFR-
based products, workflows, and data feeds
M
▪ 12.4 Infrastructure – Establishment of appropriate interfaces and staging layers to support SOFR data feeds M
13. Data ▪ 13.2 Meta- and Master-Data Management – Updated data models, constructs, and transmission protocols to support the new SOFR
related data elements
H
▪ 13.3 Data Lineage – Revised data lineage models to ensure traceability and accuracy of SOFR data (new data integrity controls). H
▪ 13.4 Data Warehouse / Data Lake – Accommodation of the SOFR data feed / timeseries for enterprise-wide consumption M
F
G
1 ISDA is currently working on developing fallback protocol language in the swaps agreement that may eliminate the need of re-papering of contractual documentation (consultation paper published on July 12, 2018)
2 ISDA Publishes Consultation on Benchmark Fallbacks (ISDA): https://www.isda.org/2018/07/12/isda-publishes-consultation-on-benchmark-fallbacks/
ISDA is currently working on developing fallback protocol language in the swaps agreement that may eliminate the need of re-papering of contractual documentation.2

NEXT STEPS FOR FINANCIAL MARKET PARTICIPANTS
Assess Business Impact
Carry out a detailed impact study from a business standpoint – evaluate impact on lines of business,
products, services, and customers.
Evaluate Front Office and Risk
Management Readiness
Assess the updates and revisions required in trading front-to-back processes, pricing and risk models, etc.
to support the SOFR-based trading activities, portfolios and risk management. Identify the changes required
in relation to trading and risk limits and internal controls.
Review Finance and Product
Control
Review the finance and accounting processes (e.g. marking-to-market, repricing, discounting, margin
calculations, etc.) and identify opportunities for revisions. Evaluate the changes required in supplementary
processes, e.g. independent price verification (IPV).
Develop Data and Technology
Strategy
Plan the strategic and tactical initiatives around data, systems, and infrastructure required to fully support
SOFR.
Evaluate Legal and Contractual
Changes
Identify the legal implications, e.g. revisions to standard terms and conditions, agreements, and other paper
work. Develop strategies for replacing LIBOR-based derivative contracts with SOFR.

LEGEND
BGCR: Broad General Collateral Rate
CCP: Central Counterparty Clearing House
CSA: Credit Support Annex
DVP: Delivery Versus Payment
ECB: European Central Bank
EFFR: Effective Federal Funds Rate
EONIA: Euro Overnight Index Average
EURIBOR: Euro Inter-Bank Offered Rate
FCA: Financial Conduct Authority
FICC: Fixed Income Clearing Corporation
FRBNY: Federal Reserve Bank of New York
FX: Foreign Exchange
GCF: General Collateral Financing
IBOR: Inter-Bank Offered Rate
IR: Interest Rate
ISDA: International Swaps and Derivatives Association
OIS: Overnight Indexed Swap
PAI: Price Alignment Interest
PE: Private Equity
SARON: Swiss Average Rate Overnight
SONIA: Sterling Overnight Index Average
SWIFT: Society for Worldwide Interbank Financial
Telecommunication
TGCR: Tri-Party General Collateral Rate
TONAR: Tokyo Overnight Average Rate
VC: Venture Capital

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adnan.niazi@accenture.com
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Matthew.briddon@accenture.com
Umer Hamid: Manager, Accenture Finance & Risk
umer.hamid@accenture.com
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james.monro@accenture.com
Authors:
Usman Raj: Senior Manager, Accenture Finance & Risk
usman.raj@accenture.com
Tony Liu: Consultant, Accenture Finance & Risk
tony.a.liu@accenture.com
Special Thanks: Grace L. Chen and Isabelle C. Savoie

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SOFR AND BEYOND
THE NEW BENCHMARK - EXPECTATIONS AND IMPLICATIONS

Secured Overnight Financing Rate and Beyond: The New Benchmark - Expectations and Implications

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