Written by Helen Bartholomew for Risk.net on May 21, 2019.

Several financial services industry groups and clearing houses are considering transitioning to the secured overnight financing rate (SOFR) via an overnight switch. This switch, dubbed the “big bang implementation,” would see all cleared and bilateral rates trades switch to SOFR on a single day sometime in the second half of 2020. Supporters of the “big bang implementation” argue that this plan would help drive adoption of SOFR and make it possible to develop a transition that is more orderly.

Under the Alternative Reference Rates Committee’s (ARRC) current plan, central counter-parties would offer a choice of Fed funds or SOFR discounting from early 2020 and would stop accepting new trades using Fed funds discounting in the second quarter of 2021. However, some industry participants believe that the ARRC should take a different approach and instead adopt a “big bang implementation.”

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