Welcome to the latest issue of Mayer Brown’s IBOR Transition Digest—a periodic compendium of global regulatory and market developments and insights on the complex issues confronting financial market participants as they plan to transition from LIBOR and its variants to replacement benchmark interest rates. As attention to IBORtransition accelerates and becomes more focused, it is critical to have access to comprehensive and timely resources about the market.
For additional resources and an introduction to our global cross-practice IBOR Transition Task Force, please visit Mayer Brown’s IBOR Transition portal.
News and Developments | Events
United States – Derivatives
Remarks of Acting Chairman Rostin Behnam at The SOFR Symposium: The Final Year sponsored by the Alternative Reference Rates Committee
Commodity Futures Trading Commission, 8 June 2021
“To avoid the conduct and stability risks that emerged when LIBOR became disconnected from actual activity, we must rely on a benchmark that is both representative of transactions and proportional to the depth and breadth of products that rely upon it. SOFR demonstrates that fitness for the derivatives markets.”
ARRC Welcomes MRAC Subcommittee’s Recommended Dates for Transitioning Interdealer Swap Market Trading Conventions to SOFR
Alternative Reference Rates Committee, 8 June 2021
The ARRC encourages market participants to support the recommended transition dates set by the Commodity Futures Trading Commission, which would not only promote a smooth transition overall, but also would “demonstrate definitive progress on the ARRC’s indicators to support its formal recommendation of the CME SOFR term rates.”
CFTC Release Number 8394-21 - CFTC’s Interest Rate Benchmark Reform Subcommittee Recommends July 26 for Transitioning Interdealer Swap Market Trading Conventions from LIBOR to SOFR
Commodity Futures Trading Commission, 8 June 2021
The Market Risk Advisory Committee’s Interest Rate Benchmark Reform Subcommittee recommends that on July 26, 2021 and thereafter, interdealer brokers replace trading of LIBOR linear swaps with trading of SOFR linear swaps, and that from July 26 until October 22, 2021, interdealer brokers’ screens for LIBOR linear swaps be available for informational purposes, but not trading activity, after which those screens should be turned off altogether.
“SOFR First” Transition Initiative – Frequently Asked Questions
Commodity Futures Trading Commission, 8 June 2021
The initiative is a recommended prioritization of interdealer trading in SOFR rather than LIBOR, and is based on the UK “SONIA First” initiative.
United States – General
ARRC Welcomes and Highlights Messages from Recent FSOC Principals Meeting
Alternative Reference Rates Committee, 15 June 2021
“LIBOR is going away very soon…, we don’t ever want to do this again so choose wisely when moving off LIBOR….”
Remarks of Federal Reserve Board Vice Chair Quarles to the Financial Stability Oversight Council
Federal Reserve Board, 11 June 2021
“With the CFTC-sponsored change to a “SOFR first” quoting convention, and with the imminent availability of a term SOFR, there is no reason for any firm to delay moving its derivatives and capital markets products to SOFR, in line with the ARRC’s recommendations.”
Remarks by Secretary of the Treasury Janet L. Yellen to the Financial Stability Oversight Council on LIBOR Transition
U.S. Department of Treasury, 11 June 2021
“SOFR provides a robust rate, suitable for use in most products and with underlying transaction volumes that are unmatched by other LIBOR alternatives…. Action by market participants now [to support the switch in derivatives from LIBOR to SOFR] will allow the ARRC to recommend a term SOFR rate quite soon.”
Prepared Remarks of Chair Gary Gensler Before the Financial Stability Oversight Council
Securities and Exchange Commission, 11 June 2021
Disfavoring the Bloomberg Short-Term Bank Yield Index (BSBY) and comparing it to LIBOR, Chair Gensler noted, “Like with LIBOR, we’re seeing a modest market, shouldering the weight of hundreds of trillions of dollars in transactions. When a benchmark is mismatched like that, there’s a heck of an economic incentive to manipulate it. That’s why I believe the Secured Overnight Financing Rate … is a preferable alternative rate.”
Statement of Acting Chairman Rostin Behnam at the Open Session of the Meeting of the Financial Stability Oversight Council
Commodity Futures Trading Commission, 11 June 2021
“As admonished by my fellow regulators, hope is not a solution, and the days of LIBOR are limited. I wholeheartedly agree with my colleague’s statement that shepherding the LIBOR transition is a key element of safeguarding the stability of the financial system.”
Statement by Acting Comptroller Michael Hsu at the Financial Stability Oversight Council
Office of the Comptroller of the Currency, 11 June 2021
“We expect every bank, regardless of size, to demonstrate that its replacement rate selections are appropriate for the bank’s products, funding needs and operational capacities.”
United Kingdom – Derivatives
The FCA and the Bank of England encourage market participants in a switch to SOFR in US dollar interest rate swap markets from 26 July
Bank of England and Financial Conduct Authority, 16 June 2021
“In line with the MRAC Subcommittee’s recommendation, the FCA and the Bank of England support and encourage all participants in the interdealer US dollar interest rate swaps market to take the steps necessary to prepare for and implement [recommended] changes to market conventions on 26 July and shift liquidity away from USD LIBOR to SOFR.”
Policy Statement PS12/21 – Solvency II: Deep, liquid and transparent assessments, and GBP transition to SONIA
Bank of England, 3 June 2021
Summarizing the 10 responses received to Consultation Paper CP1/21 - Solvency II: Deep, liquid and transparent assessments, and GBP transition to SONIA, which generally supported the PRA’s proposals on deep, liquid and transparent (DLT) assessments.
Appendix 1: Update to Statement of Policy ‘The PRA’s approach to the publication of Solvency II technical information
Bank of England, 3 June 2021
Updating the December 2020 Statement of Policy to reflect the results of Consultation Paper CP1/21.
Appendix 2: Deep, liquid, and transparent (DLT) assessment of the Sterling Overnight Index Average (SONIA) Overnight Index Swap (OIS) market
Bank of England, 3 June 2021
In this first DLT assessment report by the Bank of England Prudential Regulation Authority of the SONIA OIS market, the PRA identified the maturities that satisfy DLT criteria and noted that increasing liquidity of SONIA-based swaps is expected by market makers, and a recent Bank of England consultation paper includes the judgement that the volume and liquidity of GBP Libor cleared trades will fully switch to SONIA by Monday 20 December 2021, resulting in a proposal to extend the mandatory clearing obligation to SONIA trades with a maturity in the range of 7 days to 50 years.
Europe - General
LIBOR Transition is here – Swiss borrowers at the ready
Loan Market Association, 16 June 2021
In an interview with the LMA, corporate treasurer for Holcim Ltd, Markus Bieri, expressed an opinion that “most of the corporates in Switzerland are well prepared for the [LIBOR] transition or have access to the relevant support,” and provided his views of the approach of Swiss borrowers to LIBOR transition.
Asia and Pacific Rim – General
LIBOR Transition in the Final Stage: There will be No Deus ex Machina – Speech by Deputy Governor Amamiya at NIKKEI Financial Online Seminar
Bank of Japan, 8 June 2021
Discussing the points of which individual market participants should take note in implementing their transition activities.
Global – Derivatives
2021 Consultation on Fallbacks for GBP LIBOR® ICE Swap Rate® and USD LIBOR® ICE Swap Rate®
International Swaps and Derivatives Association, 11 June 2021
Addressing the expected cessation of LIBOR ICE swap rates and seeking feedback on how to implement fallbacks for such swap rates. Comments are due by 2 July 2021.
Replays of all of our IBOR Transition Webinar Series presentations are available via iTunes podcasts, Google play or Spotify, as well as on the IBOR Transition Webinar Series page of our dedicated IBOR Transition portal.
