The ICE Risk Free Rate (RFR) Indexes, published by ICE Benchmark Administration (IBA), are a set of RFR Indexes, for SOFR, SONIA, €STR and TONA, providing daily values that represent accrued compound interest, relative to the first day value of 100.
Developed to help address the key operational considerations of lenders and borrowers of RFR-based loans, the index values are designed to provide a simple method for calculating compound interest between any two index dates, allowing parties to agree transparently on interest accruals.
Following the conclusion of an initial testing period, the ICE RFR Indexes are being made available under licence from IBA for use in relation to financial contracts, pursuant to IBA’s Master Licence Agreement.
The following operational and economic features are included in the ICE RFR Indexes;
|Zero (0%) Floor||Many lenders would like to reference an RFR Index with a minimum RFR rate of 0% (“a floor”). If the daily RFR value is below 0%, the ICE RFR index is calculated using 0% instead of the actual RFR value.|
|Lookbacks||To help manage cash flows and address operational issues with final repayments on loans before the end of a loan accrual period or the loan term, the ICE RFR Indexes provide indexes calculated using a lag of either 2 or 5 business days.|
|Produced on weekends and holidays||To facilitate accounting for loan accruals on reporting dates that are not business days, all ICE RFR Indexes will provide index values for non-business days. Index values for non-business days will be published on the first following business day.|
ICE RFR Indexes are calculated daily and can be viewed (for information purposes only) here.
Parties wishing to use the ICE RFR Indexes (including for the purposes of interest calculations for financial contracts) should obtain a usage licence from IBA. Prospective licensees should contact IBA’s licensing team for further information.
All ICE RFR Indexes use the same underlying calculation methodology for determining index values for business days.1
Compounded Indexi = Compounded Indexi-1 × 1+RFRi-N-1 × WeightingDay Count Convention
The index for business day i, calculated and published on day i. All
published ICE RFR Index values are rounded to 8 decimal places. Compound
Index1 = 100. Day 1 for each of the ICE RFR Indexes without a lookback
matches the official RFR index and is as follows:
|Compound Indexi-1||=||The index value calculated on business day i-1. While the published value of the index is always rounded to 8 decimal places, the underlying calculation uses the previous day’s index value that has been rounded to 18 decimal places.|
|RFRi-N-1||=||The RFR rate with an effective date of i-N-1, calculated and published by the relevant official body on business day i-N. Where N is the number of days lookback or 0 for an index without any lookback. For indexes without any lookback, this will be equal to i-1, i.e. the calculation on Day i uses the RFR rate for the previous business day, which is published on day i.|
|Indexes using a Floor||=||
For an index with a floor, if the RFR value on the relevant business day
is below the floor value, then the floor value will be used within the
index calculation instead of the actual RFR value. For an index with a
floor the rate used in a calculation is as follows.
|Weighting||=||The weighting to apply to the RFR rate for business day i-N-1. The Weighting will equal the number of calendar days from business day i-1 to business day i, i.e. the number of calendar days between the previous calendar day and the current calendar day. For a typical week with no holidays, the weighting will be 1 on Monday through to Thursday and 3 on Friday.|
|Day Count Convention||=||
360 for SOFR and €STR indexes
365 for SONIA and TONA indexes
Using the ICE RFR Indexes to Calculate Interest
The interest accrued for a loan for a given period can be calculated using the index values on the start and end days of the loan:
For example, using the Index with No Floor and a 5 Day Lag, for a SONIA based loan of £100m from Tuesday 1 September 2020 to Wednesday 3 March 2021:
The following ICE RFR Indexes are published each business day;
|Floor||Lookback||Lookback Period (business days)||Values Published for non-business days|
The "SONIA" mark is used under licence from the Bank of England (the benchmark administrator of SONIA), and the use of such mark does not imply or express any approval or endorsement by the Bank of England. "Bank of England" and "SONIA" are registered trade marks of the Bank of England.