As market participants prepare to submit comments on the recent proposal of the UK’s Financial Conduct Authority (the “FCA”) (available here) to require the temporary publication of a “synthetic” 1-, 3- and 6-month USD LIBOR, some have voiced concern that such a compelled publication of a synthetic USD LIBOR could precipitate a wave of litigation over whether certain U.S. law-governed contracts will be able to fall back to contractually agreed alternative rates in June 2023.Continue Reading Synthetic USD LIBOR
On August 12, 2022, the CFTC issued a final rule modifying its clearing requirement for interest rate swaps (“IRS”).
The final rule updates the types of IRS required to be submitted to a registered derivatives clearing organization (“DCO”) for mandatory clearing by:
- eliminating the requirements to clear IRS referencing LIBOR and certain other interbank offered rates (“IBORs”); and
- introducing, in their place, new requirements to clear IRS referencing the relevant replacement risk-free rates, such as the Secured Overnight Financing Rate (“SOFR”) in the case of USD LIBOR.
On August 25, the LSTA published its Term SOFR Concept Document (the “Term SOFR Concept Document”)—the latest addition to its suite of SOFR-based Concept Documents.
Continue Reading LSTA Publishes Term SOFR Concept Document
As expected, on July 28, 2021, the Alternative Reference Rates Committee (ARRC) formally recommended the CME’s SOFR Term Rate. The SOFR Term Rate is known in advance of the related interest period and provides an indicative, forward-looking measurement of SOFR based on market expectations implied from leading derivatives markets. In this respect, the SOFR Term Rate functions in a manner similar to today’s LIBOR rates. In contrast, the Daily Simple SOFR or Daily Compounded SOFR used for interest periods beyond overnight can only be determined in arrears. The SOFR Term Rate thus facilitates in a significant way the transition away from the current LIBOR markets.
Continue Reading ARRC Formally Recommends Term SOFR
This past Monday, July 26, marked passage of the most recent major milestone in the replacement of LIBOR as the benchmark USD interest rate. Following the recommendation of the CFTC’s Market Risk Advisory Committee (MRAC) Interest Rate Benchmark Reform Subcommittee, on July 26, 2021 interdealer brokers replaced trading in LIBOR linear swaps with SOFR linear swaps. This switch is a precursor to the recommendation of SOFR term rates. The switch does not apply to trades between dealers and their non-dealer customers.
Continue Reading Latest Milestone in LIBOR Replacement Passed