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Designing an Efficient Reference Rate: Lessons from SOFIA

Author

Listed:
  • James Brugler

    (Department of Finance, The University of Melbourne)

  • Calebe de Roure

    (Reserve Bank of Australia)

  • Marta Khomyn

    (University of Adelaide)

  • Max Prakoso

    (Reserve Bank of Australia)

  • Talis Putniņš

    (University of Technology Sydney)

Abstract

We evaluate the informational efficiency of the Secured Overnight Funding Index Australia (SOFIA™), currently in its beta phase, and how design choices may impact the benchmark rate. We use a state-space model to separate time-varying noise in the benchmark from the underlying efficient rate and investigate the determinants of noise in the daily time series and at the transaction level. Related-party transactions, high market concentration, and low transaction volumes are associated with higher noise. Our modelling suggests that considering alternative methods for trimming the transactions used in calculating the benchmark, compared to the initially proposed approach, may enhance its informational efficiency and robustness. These results provide evidence on how to optimise the benchmark's design. Indeed, the Australian Securities Exchange has already adjusted its SOFIA methodology to reflect most of these findings, in preparation for the potential transition of SOFIA from its beta phase to a live benchmark.

Suggested Citation

  • James Brugler & Calebe de Roure & Marta Khomyn & Max Prakoso & Talis Putniņš, 2026. "Designing an Efficient Reference Rate: Lessons from SOFIA," RBA Research Discussion Papers rdp2026-03, Reserve Bank of Australia.
    • Handle: RePEc:rba:rbardp:rdp2026-03
    DOI: 10.47688/rdp2026-03
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    References listed on IDEAS

    as
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    Keywords

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    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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