As the phase-out of the London interbank offered rate approaches at year end, derivatives trading linked to the Secured Overnight Financing Rate increased by 78% in August, says TD Securities. "The [US Commodity Futures Trading Commission's] SOFR First initiative was a key step toward supercharging growth in SOFR derivatives trading," says Alternative Reference Rates Committee head Tom Wipf.

Swaps desks have shifted to the Secured Overnight Financing Rate for most interdealer trades. The move should cause a flurry of activity and should create enough activity to establish a forward-looking term rate, a critical milestone in the transition to SOFR. This "is a huge deal," says Thomas Pluta, global head of linear rates trading at JPMorgan Chase. "We've been surprised at how slow the uptake in SOFR derivatives has been to this point, so this is exactly what the market needs."

Regulators have urged market participants to shift derivatives and other contracts to the Secured Overnight Financing Rate during a meeting of the Financial Stability Oversight Council. Federal Reserve Vice Chair for Supervision Randal Quarles says there is "no path forward" for Libor. Treasury Secretary Janet Yellen says, "The most critical step in the transition is the move toward truly robust alternative rates like SOFR."

Alternative Reference Rates Committee chairman Tom Wipf said that the ARRC will require dealers to price US dollar swaps transactions to the Secured Overnight Financing Rate by late July. The summer timeline means "we've got time for the market to begin to use SOFR, for clients to adapt, and it will put us in a position when we reach that hard supervisory brick wall of no new Libor that clients and all market participants will be able to transition more smoothly," said Wipf.