CFTC Provides Additional LIBOR Transition Relief to DCOs

The news comes as the scandal-ridden LIBOR is set to retire at the end of 2021.

The Commodity Futures Trading Commission (CFTC) has provided further relief to market participants relating to the transition from swaps referencing LIBOR and other interbank offered rates. The CFTC staff has issued two no-action letters providing the additional relief for swap transactions transitioning from Libor to alternative benchmarks, which applies to specific derivatives clearing organizations (DCOs) and other market participants.

The news comes as the scandal-ridden LIBOR is set to retire at the end of 2021 as the world’s most important benchmark following a multiyear rigging scandal by major lender since the 2008 financial crisis.

Swaps dealers were handed additional relief by the CFTC earlier in September amid the transition from the Libor and other interbank reference rates to alternative benchmarks. The relief covers requirements applicable to swap dealers, the trade execution requirement and mandatory clearing.

Letter No. 19-26 provides relief for certain swaps executed as part of the LCH Limited discounting transition auction on October 16, 2020. Further, Letter No. 20-33 provides relief for certain swaps executed as part of the CME Inc. discounting transition auction on October 19, 2020.

Libor Is Being Replaced by SONIA

The CFTC said today’s relief will help smooth the transition away from interbank offered rates (IBORs), particularly with respect to older, legacy swaps that are sitting on the books of dealers and their clients, and in particular end-users around the world.

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“The relief provides for a delay in the reporting of swap transaction and pricing data under CFTC Regulation 43.3 for specific swaps that may be executed as part of the upcoming discounting transition auctions that will be held by LCH Limited or CME Inc. The relief allows the reporting of swap transaction and pricing data for the relevant swaps to be delayed until November 19, 2020,” the agency further states.

They were a dozen bankers that have been convicted on Libor rate-rigging charges in the US in a series of prosecutions brought by the DoJ and other regulators, which ultimately prompted an overhaul of the rate-setting rules. Prosecutors alleged that bank traders dishonestly manipulated the rate to benefit their own trading positions, nudging them up or down while ignoring rules that they should be set independently.

LIBOR, which underpins more than $300 trillion in derivatives and other instruments, is set to be replaced with the Bank of England’s Sonia rate for sterling-denominated swaps, loans, and futures.

Global regulators urged market participants earlier this year to accelerate the shift to the Sonia overnight rate before it ceases issuance of cash products, referencing Libor by the third quarter.

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