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SOFR Academy

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SOFR Academy
Company typePrivate
IndustryEconomic education, financial technology, financial market information
Founded2020
FounderMarcus Burnett
Headquarters
New York City
,
United States
OwnerMarcus Burnett[1] (majority owner)
Websitesofr.org

SOFR Academy, Inc. is a U.S.-based economic education and market information provider. In connection with global reference rate reform and the transition away from the London Interbank Offered Rate (LIBOR),[2][3][4] the firm operationalized benchmark credit spreads US-dollar Across-the-curve credit spread indices (AXI)[5] that can be referenced in lending products in conjunction with the Secured Overnight Financing Rate (SOFR)[6][7][8] to mitigate mismatches for financial institutions between their assets and liabilities in times of market stress thereby promoting their ability to provide credit.[9]

SOFR Academy is a member of various industry and academic associations such as the American Economic Association (AEA), the Loan Syndications and Trading Association (LSTA), the International Swaps and Derivatives Association (ISDA), the Bankers Association for Finance and Trade (BAFT), which is a wholly owned subsidiary of the American Bankers Association (ABA), the United States Chamber of Commerce (USCC),[10] and the Bretton Woods Committee (BWC).[11]

Foundation

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Founded in 2020, SOFR Academy was established by Marcus A. Burnett,[12] a former interest rate trader and capital markets consultant who began his career at the Commonwealth Bank of Australia (CBA). The firm initially focused on economic education in connection with reference rate reform, and in 2021, expanded their concentration in response to a request by ten U.S. regional banks for the development of a credit spread supplement for SOFR.

The firm's panel of advisors includes academics from Harvard University, University of California, Berkeley, New York University, Tsinghua University, University of Oxford, and the London Business School. Massachusetts Institute of Technology Professor Haoxiang Zhu is a former advisor of the firm and stepped down in November 2021 prior to being appointed as the Director of the U.S. Securities and Exchange Commission's (SEC) Division of Trading and Markets. Former Federal Reserve Board and United States Department of the Treasury economist, Samim Ghamami,[13] joined the firm as a senior advisor in 2021 and currently serves as an economist at the SEC's Division of Economic and Risk Analysis (DERA). In 2022, Alex Edmans was appointed to the firms panel of Advisors.[14] In 2023, former J.P. Morgan Head of US Interest Rate Strategy, Alex Roever, joined the firm as a senior advisor.

SOFR Academy is backed by leading Austin-based venture firm 8VC,[15] led by Palantir Technologies founder Joe Lonsdale, as well as people such as Robert Litterman, who spent 23 years at Goldman Sachs and developed the Black–Litterman model together with Fischer Black in 1990.

Operationalization of AXI and FXI

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In 2021, SOFR Academy announced its intention to publish the Across-the-Curve Credit Spread Indices[16] to assist the market with U.S. Dollar LIBOR transition.[17][18][19] In 2022, Invesco Indexing LLC, an independent index provider owned by global asset manager Invesco Ltd (NYSE: IVZ),[9] partnered with SOFR Academy to launch the first-of-their-kind US-dollar Across-the-Curve Credit Spread Indices ("AXI")[20][21][22][23] and US-dollar Financial Conditions Credit Spread Indices ("FXI").[24][25][26] The US-dollar denominated AXI and FXI benchmark credit spreads are accessible via Bloomberg and Refinitiv / LSEG.

These indices work in conjunction with the SOFR and address a concern communicated by a group of American banks.[27] This concern was that under a SOFR-only environment in times of economic stress, the return on banks' SOFR-linked loans would decline, while banks' unhedged costs of funds would increase, thus creating a significant mismatch between bank assets (loans) and liabilities (borrowings).[28][21] AXI and FXI were discussed at the Credit Sensitivity Group Workshops hosted by the Federal Reserve Bank of New York.[29][7]

AXI / FXI was first conceived jointly by Darrell Duffie[30] at the Stanford Graduate School of Business, and Antje Berndt[31] and Yichao Zhu at the Australian National University.[32] In 2014, Duffie chaired the Market Participants Group,[33] charged by the Financial Stability Board with recommending reforms to Libor, Euribor,[34] and other interest rate benchmarks.

SOFR Academy has commissioned AXI / FXI feasibility studies for the following countries and regions.

Further reading

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  • "Campaign to Kill Off Libor Is Boosted by Landmark Bond Sale". Bloomberg. 2021-02-17.
  • "Libor Exit to Cost Global Banks $100 Million Each This Year". Bloomberg. 2021-02-05.
  • "Fresh From Prison, Tom Hayes Stirs Up Debate About Libor's Adequacy". Bloomberg. 2021-02-04.
  • "Libor Marks 'Important Day' With Partial Fix for Derivative Risk". Bloomberg. 2021-01-25.
  • "Libor Proving Hard to Kill in $200 Trillion Derivatives Market". Bloomberg. 2021-01-11.
  • "Killing Libor Proves Harder Than Global Regulators Imagined". Bloomberg. 2020-12-01.
  • "Banks Brace for 'Big Bang' Switch on $80 Trillion Worth of Swaps". Bloomberg. 2020-10-15.

References

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  1. ^ "SOFR Standpoint Part II: A LIBOR transition discussion". Hunton Andrews Kurth LLP.
  2. ^ "Leaping the LIBOR hurdles". Treasury Today. March 16, 2023.
  3. ^ "As Libor ends, credit-sensitive rates face day of reckoning - Risk.net". www.risk.net. June 29, 2023.
  4. ^ "The Libor replacement stakes: runners and riders - Risk.net". www.risk.net. June 14, 2021.
  5. ^ Dew, Kurt (June 25, 2021). "SOFR Is A Dead End: It's AXI Or BSBY | Seeking Alpha". seekingalpha.com.
  6. ^ "Regulators Draw a Line on an Attempted Use of Term SOFR". www.garp.org.
  7. ^ a b "NY Fed paper warns of systemic risks from SOFR credit lines - Risk.net". www.risk.net. February 8, 2023.
  8. ^ "Progress on Global Transition to RFRs in Derivatives Markets" (PDF). March 2023. Retrieved December 5, 2023.
  9. ^ a b "Invesco / SOFR Academy USD Across-the-Curve Credit Spread Indexes (AXI)". www.invescosofracademyaxi.com.
  10. ^ "SOFR Academy, Inc. – ISDA Membership". membership.isda.org.
  11. ^ "How Large Regional Banks Can Succeed in a Higher Interest Rate Environment | The Bretton Woods Committee". www.brettonwoods.org.
  12. ^ Maurer, Mark (January 13, 2023). "Companies, Lenders Clash Over Loan Spreads in Switch From Libor" – via www.wsj.com.
  13. ^ "Samim Ghamami". samimghamami.com.
  14. ^ "SOFR Academy Appoints Alex Edmans to Panel of Advisors". April 29, 2022.
  15. ^ "8VC | A different kind of VC firm". www.8vc.com.
  16. ^ "Credit Sensitivity & the Across-the-Curve Credit Spread AXI". prmia.org.
  17. ^ Wiltermuth, Joy. "Goodbye Libor? House spending bill offers a patch for $16 trillion debt backlog mired by the rate". MarketWatch.
  18. ^ "Many firms still not prepared for US dollar Libor transition". Euromoney. August 26, 2022.
  19. ^ "SOFR Academy Announces Its Intention to Publish the Across-the-Curve Credit Spread Index (AXI), to Assist the Market With U.S. Dollar LIBOR Transition". www.businesswire.com. March 31, 2021.
  20. ^ Ghamami, Samim (July 16, 2023). "Unintended Impact of LIBOR-SOFR Transition on Credit Markets and Economic Activity" (PDF). Retrieved December 5, 2023.
  21. ^ a b "Bank Funding Risk, Reference Rates, and Credit Supply". Federal Reserve of New York.
  22. ^ "Why the Shift in Benchmark Rates Could Hurt Banks".
  23. ^ Tuckman, Bruce (January 26, 2023). "Short-Term Rate Benchmarks: The Post-LIBOR Regime". doi:10.2139/ssrn.4351722 – via Social Science Research Network.
  24. ^ Invesco Ltd; SOFR Academy. "Invesco Indexing and SOFR Academy announce official launch of the Invesco USD Across-the-Curve Credit Spread Indices (AXI)". www.prnewswire.com.{{cite web}}: CS1 maint: multiple names: authors list (link)
  25. ^ "SOFR Academy, Invesco Launch New Credit Spread Indices". July 26, 2022.
  26. ^ "Western Asset Blog: LIBOR Transition Update—When Does the New Term Begin?". www.westernasset.com.
  27. ^ "Credit sensitivity letters" (PDF). Federal Reserve Bank of New York. 2020. Retrieved December 5, 2023.
  28. ^ "Unintended Impact of LIBOR-SOFR Transition on Credit Markets and Economic Activity". The Bretton Woods Committee.
  29. ^ "Transition from LIBOR: Credit Sensitivity Group Workshops". Federal Reserve of New York.
  30. ^ "Darrell Duffie, Graduate School of Business, Stanford University". www.darrellduffie.com.
  31. ^ "Antje Berndt".
  32. ^ "Dr Yichao Zhu | College of Business and Economics". cbe.anu.edu.au.
  33. ^ "Final Report of the Market Participants Group on Reforming Interest Rate Benchmarks". Financial Stability Board. 2014-07-22. Retrieved 2023-12-22.
  34. ^ a b "Euro Axi rate proposed as Euribor fallback - Risk.net". www.risk.net. June 28, 2023.
  35. ^ "Chinese AXI". SOFR Academy. 2023-01-11. Retrieved 2023-12-22.
  36. ^ "European AXI ("EURAXI")". SOFR Academy. 2023-09-12. Retrieved 2023-12-22.
  37. ^ "SOFR Academy welcomes publication of "EURAXI: a benchmark for Euro credit spreads" paper by University of Oxford academics". www.businesswire.com. June 27, 2023.
  38. ^ "EURAXI: A Benchmark for Euro Credit Spreads". INET Oxford.
  39. ^ "Rama Cont | Mathematical Institute". www.maths.ox.ac.uk.
  40. ^ "Susanna Saroyan". INET Oxford.
  41. ^ Asia, Manesh Samtani, Regulation (September 11, 2023). "New Study Explores Feasibility of AXI, FXI Indices for Japan".{{cite web}}: CS1 maint: multiple names: authors list (link)
  42. ^ "Japanese FXI". SOFR Academy. 2023-10-16. Retrieved 2023-12-22.
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