US investment bank BNY Mellon has become the first bank to complete a trade finance deal using the CME’s new Secured Overnight Financing Rate (SOFR).
In a trade finance loan transaction with Brazilian bank Banco Bradesco, BNY Mellon successfully used the CME SOFR as its reference interest rate.
The SOFR is one of several alternatives to the London Interbank Offered Rate (LIBOR), which will cease at midnight on December 31, 2021.
In a press release, BNY Mellon said it strongly supports the migration to SOFR, a transition which it believes will strengthen markets, since alternative reference rates are based upon repurchase agreement (repo) transaction data.
While LIBOR will be phased out in 2022, BNY Mellon said it is committed to assisting clients on a smooth transition across to alternative reference rates such as SOFR by beginning the migration well ahead of year-end 2021.
Joon Kim, head of trade finance product and portfolio management at BNY Mellon in New York, said: “We are delighted to be the first bank to issue a trade financing loan using the new CME SOFR rate with Banco Bradesco.
“BNY Mellon has been strongly encouraging clients to embrace alternative reference rates in a timely manner, with our Treasury Services team informing clients that we would be moving all transactions to benchmark off of CME Term SOFR, SOFR Averages, and Overnight SOFR as of October 1, 2021.”
Sheico Pimenta, executive general manager at Banco Bradesco in Sao Paulo, said: “Bradesco is proud to be one of the first institutions to use SOFR as the benchmark rate in a trade financing transaction.
“SOFR and other alternative reference rates represent the future, introducing more certainty and greater integrity into financial markets.
“We are pleased to have worked so closely with BNY Mellon’s team to successfully complete this transaction.”
While this first transaction originated in trade finance, BNY Mellon is also involved in the LIBOR migration across other asset classes that will be affected by the adoption of alternative reference rates.
Jason Granet, chief investment officer at BNY Mellon, said: “We’ve been ahead of the curve on the LIBOR transition at the enterprise level, holding discussions with clients across geographies and encouraging them to implement the new benchmark rates in executing trades.
“I believe we will have many more success stories to share in the weeks ahead as, ultimately, LIBOR will not be used after December 31, 2021 and pushing the transition off is not an ideal approach for clients.”