Secured Overnight Financing Rate

The Secured Overnight Financing Rate (SOFR) is a benchmark interest rate for dollar-denominated derivatives and loans that is expected to replace the London Interbank Offered Rate (LIBOR). An influential interest rate, the SOFR is a broad measure of the cost of borrowing cash overnight collateralized by Treasury securities. Benchmark rates such as SOFR are essential in the trading of derivatives—particularly interest-rate swaps, which corporations and other parties use to manage interest-rate risk and to speculate on changes in borrowing costs. SOFR includes the tri-party general collateral rate collected by BNYM, the GCF repo rate from DTCC, and the rate used in bilateral Treasury repo transactions cleared at the Fixed Income Clearing Corporation. Other countries have sought their own alternative rates, such as SONIA and EONIA.