[Federal Register Volume 86, Number 223 (Tuesday, November 23, 2021)]
[Proposed Rules]
[Pages 66476-66488]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-25450]



17 CFR Part 50

RIN 3038-AF18

Swap Clearing Requirement To Account for the Transition From 
LIBOR and Other IBORs to Alternative Reference Rates

AGENCY: Commodity Futures Trading Commission.

ACTION: Request for information and comment.


SUMMARY: The Commodity Futures Trading Commission (Commission or CFTC) 
is seeking information and public comment on how the Commission could 
amend its swap clearing requirement to address the cessation of certain 
interbank offered rates (IBORs) (e.g., the London Interbank Offered 
Rate (LIBOR)) used as benchmark reference rates and the market adoption 
of alternative reference rates; namely, overnight, nearly risk-free 
reference rates (RFRs). The Commission is requesting input from market 
participants and all interested members of the public on aspects of the 
Commission's swap clearing requirement that may be affected by the 
transition from certain IBORs to alternative reference rates.

DATES: Comments must be received on or before January 24, 2022.

ADDRESSES: You may submit comments, identified by RIN 3038-AF18, by any 
of the following methods:
     CFTC Comments Portal: https://comments.cftc.gov. Select 
the ``Submit Comments'' link for this rulemaking and follow the 
instructions on the Public Comment Form.
     Mail: Send to Christopher Kirkpatrick, Secretary of the 
Commission, Commodity Futures Trading Commission, Three Lafayette 
Centre, 1155 21st Street NW, Washington, DC 20581.
     Hand Delivery/Courier: Follow the same instructions as for 
Mail, above. Please submit your comments using only one of these 
methods. Submissions through the CFTC Comments Portal are encouraged. 
All comments must be submitted in English, or if not, accompanied by an 
English translation. Comments will be posted as received to https://comments.cftc.gov. You should submit only information that you wish to 
make available publicly. If you wish the Commission to consider 
information that you believe is exempt from disclosure under the 
Freedom of Information Act, a petition for confidential treatment of 
the exempt information may be submitted according to the procedures 
established in Sec.  145.9 of the Commission's regulations. The 
Commission reserves the right, but shall have no obligation, to review, 
pre-screen, filter, redact, refuse or remove any or all of your 
submission from https://comments.cftc.gov that it may deem to be 
inappropriate for publication, such as obscene language.

FOR FURTHER INFORMATION CONTACT: Sarah E. Josephson, Deputy Director, 
at 202-418-5684 or [email protected]; Melissa D'Arcy, Special 
Counsel, at 202-418-5086 or [email protected]; or Daniel O'Connell, 
Special Counsel, at 202-418-5583 or [email protected]; each in the 
Division of Clearing and Risk at the Commodity Futures Trading 
Commission, Three Lafayette Centre, 1155 21st Street NW, Washington, DC 


Table of Contents

I. Background
    A. The Commission's Swap Clearing Requirement
    B. The End of LIBOR
    C. Identification of Alternative Reference Rates
    D. Transition to Alternative Reference Rates
    E. International Regulatory Developments
II. Market Adoption of Alternative Reference Rates
    A. Industry Initiatives
    B. Availability of Clearing
    C. Current Trends in Alternative Reference Rates
III. Request for Information
    A. Swaps Subject to the Clearing Requirement
    B. Swaps Not Currently Subject to the Clearing Requirement
IV. Request for Comment
    A. General Request for Comment
    B. Specific Requests for Comment

[[Page 66477]]

I. Background

A. The Commission's Swap Clearing Requirement

    Over a decade has passed since the Dodd-Frank Wall Street Reform 
and Consumer Protection Act (Dodd-Frank Act) \1\ established a 
comprehensive new regulatory framework for swaps. Title VII of the 
Dodd-Frank Act (Title VII) amended the Commodity Exchange Act (CEA) to 
require, among other things, that a swap be cleared through a 
derivatives clearing organization (DCO) that is registered under the 
CEA or a DCO that is exempt from registration under the CEA if the 
Commission has determined that the swap, or group, category, type, or 
class of swap, is required to be cleared, unless an exception to the 
clearing requirement applies.\2\

    \1\ Dodd-Frank Wall Street Reform and Consumer Protection Act, 
Public Law 111-203, 124 Stat. 1376 (2010).
    \2\ Section 2(h)(1)(A) of the CEA, 7 U.S.C. 2(h)(1)(A).

    The CEA, as amended by Title VII, provides two avenues for the 
Commission to issue a clearing requirement determination. First, under 
Section 2(h)(2)(A) of the CEA, the Commission may issue a clearing 
requirement determination based on a Commission-initiated review of a 
swap.\3\ Second, under Section 2(h)(2)(B) of the CEA, the Commission 
may issue a clearing requirement determination based on a swap 
submission from a DCO.\4\

    \3\ 7 U.S.C. 2(h)(2)(A). Commission regulation 39.5(c) sets 
forth the procedures for Commission-initiated reviews of swaps that 
have not been accepted for clearing by a DCO to determine whether 
they should be required to be cleared. 17 CFR 39.5(c).
    \4\ Section 2(h)(2)(B) of the CEA, 7 U.S.C. 2(h)(2)(B), and the 
implementing regulations in Commission regulation 39.5(b), require a 
DCO to submit to the Commission each swap, or any group, category, 
type, or class of swaps, that it plans to accept for clearing. 
Section 2(h)(2)(B)-(C) of the CEA describes the process by which the 
Commission is required to review swap submissions from DCOs to 
determine whether the swaps should be subject to the clearing 
requirement. Commission regulation 39.5(b) establishes the 
procedures for the submission of swaps by a DCO to the Commission 
for a clearing requirement determination.

    The Commission has issued two clearing requirement determinations. 
The first clearing requirement determination (First Determination) was 
adopted in 2012 and covered certain credit default swap indexes, and 
interest rate swaps in four currencies and in four classes: (1) Fixed-
to-floating swaps; (2) basis swaps; (3) forward rate agreements (FRAs); 
and (4) overnight index swaps (OIS).\5\ The four classes of interest 
rate swaps required to be cleared, along with their specifications, 
discussed below, are set forth in Commission regulation 50.4 (Clearing 
Requirement).\6\ The second clearing requirement determination (Second 
Determination) was adopted in 2016 and covered interest rate swaps in 
nine additional currencies.\7\

    \5\ Clearing Requirement Determination Under Section 2(h) of the 
CEA; Final Rule, 77 FR 74284 (Dec. 13, 2012).
    \6\ 17 CFR 50.4.
    \7\ Clearing Requirement Determination Under Section 2(h) of the 
Commodity Exchange Act for Interest Rate Swaps; Final Rule, 81 FR 
71202 (Oct. 14, 2016). The Commission adopted the Second 
Determination largely in order to further harmonize its Clearing 
Requirement with those of other jurisdictions, specifically: 
Australia, Canada, the European Union, Hong Kong, Mexico, Singapore, 
and Switzerland. Id. at 71203-05. Harmonizing the Commission's 
Clearing Requirement with other jurisdictions' clearing requirements 
serves an important anti-evasion goal. As the Commission explained, 
if a non-U.S. jurisdiction issued a clearing requirement and a swap 
dealer located in the U.S. were not subject to that non-U.S. 
clearing requirement, then a swap market participant in the non-U.S. 
jurisdiction could potentially avoid the non-U.S. clearing 
requirement by entering into a swap with the swap dealer located in 
the U.S. Id. at 71203.

    Section 2(h)(2)(D)(ii) of the CEA requires the Commission to 
consider the following five factors when making a clearing requirement 
determination: (I) The existence of significant outstanding notional 
exposures, trading liquidity, and adequate pricing data; (II) the 
availability of rule framework, capacity, operational expertise and 
resources, and credit support infrastructure to clear the contract on 
terms that are consistent with the material terms and trading 
conventions on which the contract is traded; (III) the effect on the 
mitigation of systemic risk, taking into account the size of the market 
for such contract and the resources of the DCOs available to clear the 
contract; (IV) the effect on competition, including appropriate fees 
and charges applied to clearing; and (V) the existence of reasonable 
legal certainty in the event of the insolvency of the relevant DCO or 1 
or more of its clearing members with regard to the treatment of 
customer and swap counterparty positions, funds, and property.\8\ The 
Commission considered each factor in making both clearing requirement 

    \8\ 7 U.S.C. 2(h)(2)(D)(ii).

    The Commission has explained in prior clearing requirement 
determinations that while there exists a wide degree of variability in 
contract specifications for interest rate swaps,\9\ there also exist 
certain conventions and specifications that DCOs and market 
participants commonly use, and which allow classes of swaps, and 
primary specifications within each class, to be identified.\10\ The 
Commission has adopted clearing requirement determinations for four 
classes of swaps based on these common conventions and specifications, 
and submissions from DCOs of swaps accepted for clearing. In the notice 
of proposed rulemaking preceding the First Determination, consistent 
with the factors set forth in CEA section 2(h)(2)(D)(ii), the 
Commission proposed to adopt a clearing requirement after concluding 
that each of the four swap classes being cleared had significant 
outstanding notional amounts and trading liquidity, and that a large 
percentage of each class was already being cleared.\11\ The Commission 
reaffirmed those conclusions in the final rule.\12\ The Commission also 
identified six specifications for the interest rate swaps that are 
subject to the clearing requirement: (1) The currency in which the 
notional and payment amounts are specified; (2) the rates referenced 
for each leg of the swap; (3) the stated termination date of the swap; 
(4) whether the swap contains optionality, as specified by the DCOs; 
(5) whether the swap contains dual currencies; and (6) whether the swap 
contains conditional notional amounts.\13\ Now, as the international 
regulatory community and financial markets transition from IBORs to 
alternative reference rates, the Commission is requesting information 
and comment on each of the swaps currently subject to the clearing 
requirement, and whether the Commission should update any of its prior 
determinations due to the

[[Page 66478]]

ongoing and anticipated market-wide shift in reference rates.

    \9\ Clearing Requirement Determination Under Section 2(h) of the 
CEA; Notice of Proposed Rulemaking, 77 FR 47170, 47186 & n.77 (Aug. 
7, 2012) (citing a Federal Reserve Bank of New York staff report 
that over 10,500 different combinations of significant interest rate 
swaps terms had been identified in a single three-month period in 
    \10\ First Determination, 77 FR 74301.
    \11\ 77 FR 47194-96 (discussing data from the Bank of 
International Settlements, TriOptima, the G14 Dealers to the OTC 
Derivatives Supervisors Group, and LCH).
    \12\ First Determination, 77 FR 74307-08.
    \13\ Id. at 74302-03, 74332. The term ``conditional notional 
amount'' refers to a notional amount that is subject to change over 
the term of a swap based on a condition that the swap counterparties 
establish upon the execution of the swap, such that the notional 
amount of the swap is unknown and may change based on the occurrence 
of a future event. Id. at 74302 n.108. Additionally, the Commission 
believed that swaps with optionality, multiple currency swaps, and 
swaps with notional amounts not specified at the time of execution 
give rise to concerns regarding accurate pricing and consistency 
across contracts, and should therefore be excluded from the clearing 
requirement. Id. at 74332. The Commission also stated that, as of 
the time of the final rulemaking for the First Determination, no DCO 
was offering swaps meeting these negative specifications for 
clearing. Id.

    The Commission's Clearing Requirement covers a number of swaps that 
reference IBORs: Swaps in multiple currencies in each of the fixed-to-
floating swap, basis swap, and FRA class that refer to LIBOR are 
required to be cleared. The First Determination covered certain 
interest rate swaps in each of these classes referencing LIBOR in three 
currencies: U.S. dollars (USD), British pounds (GBP), and Japanese yen 
(JPY).\14\ The Second Determination covered certain fixed-to-floating 
interest rate swaps referencing LIBOR in Swiss francs (CHF).\15\

    \14\ First Determination, 77 FR 74310-11.
    \15\ Second Determination, 81 FR 71202.

    The Commission is monitoring changes to benchmark reference rates 
around the world and how those changes may affect trading liquidity and 
clearing availability, as well as the other factors discussed above, in 
different interest rate swap products. Although benchmark reforms are 
ongoing, there have been recent updates with respect to LIBOR rates for 
the major currencies, including USD, GBP, JPY, and CHF, that may 
warrant changes to the Clearing Requirement in the near future.

B. The End of LIBOR

    LIBOR is an interest rate benchmark that is intended to measure the 
average rate at which a bank can obtain unsecured funding in the London 
interbank market for a given tenor and currency. It is among the 
world's most frequently referenced interest rate benchmarks and serves 
as a reference rate for a wide variety of derivatives and cash market 
products. LIBOR is calculated based on submissions from a panel of 11 
to 16 contributor banks, depending on the currency, and is published on 
every London business day for five currencies (USD, GBP, Euro (EUR), 
CHF, and JPY) and seven tenors (overnight or spot next,\16\ 1-week, 1-
month, 2-month, 3-month, 6-month, and 12-month), resulting in 35 
individual LIBOR rates. Each contributor bank submits data for all 
seven tenors in each currency for which it is on a panel.\17\

    \16\ The shortest tenor for USD, GBP, and EUR LIBOR is 
overnight; the shortest tenor for CHF and JPY LIBOR is spot next.
    \17\ See generally ICE Benchmark Administration (IBA), LIBOR, 
available at https://www.theice.com/iba/libor. The current 
contributor bank panel members are expected to fulfill their roles 
through the end of 2021, and all but one of the current USD LIBOR 
bank panel members are expected to continue submissions until June 
30, 2023 for the overnight, 1-month, 3-month, 6-month, and 12-month 
tenors. IBA, ICE LIBOR Feedback Statement on Consultation on 
Potential Cessation, March 5, 2021, at 4 n.2 [hereinafter ``ICE 
LIBOR Feedback Statement on Consultation on Potential Cessation''], 
available at https://www.theice.com/publicdocs/ICE_LIBOR_feedback_statement_on_consultation_on_potential_cessation.pdf.

    The announcement in 2012 of government investigations concerning 
alleged manipulation of LIBOR, and a decline in the volume of interbank 
lending transactions that LIBOR is intended to measure, have given rise 
to concerns regarding the integrity and reliability of LIBOR and other 
IBORs.\18\ Notably, the Commission's enforcement actions against LIBOR 
manipulators helped to raise awareness about potential shortcomings in 
the reliability of LIBOR reports and calculations.\19\

    \18\ See, e.g., International Organization of Securities 
Commissions (IOSCO), Principles for Financial Benchmarks, July 2013, 
at 1, available at https://www.iosco.org/library/pubdocs/pdf/IOSCOPD415.pdf; David Bowman, et al., ``How Correlated Is LIBOR With 
Bank Funding Costs?,'' FEDS Notes, June 29, 2020, available at 
Alternative Reference Rates Committee, Second Report, Mar. 2018, at 
1-3 [hereinafter ``ARRC Second Report''], available at https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2018/ARRC-Second-report.
    \19\ See, e.g., In re Soci[eacute]t[eacute] 
G[eacute]n[eacute]rale S.A., No. 18-14 (CFTC June 4, 2018) ($475 
million penalty); In re Deutsche Bank AG, No. 15-20 (CFTC Apr. 23, 
2015) ($800 million penalty); In re The Royal Bank of Scotland plc, 
No. 13-14 (CFTC Feb. 6, 2013) ($325 million penalty); In re UBS AG, 
No. 13-09 (CFTC Dec. 19, 2012) ($700 million penalty); In re 
Barclays PLC, No. 12-25 (CFTC June 27, 2012) ($200 million penalty).

    In response to calls for reform, LIBOR was brought within the U.K. 
Financial Conduct Authority (FCA)'s regulatory scope and placed under 
IBA's administration.\20\ IBA has reformed LIBOR in a number of ways, 
including enhancing the benchmark's oversight procedures and 
establishing a new calculation methodology.\21\ However, regulators and 
global standard-setting bodies do not view these reforms as a long-term 

    \20\ Previously, LIBOR was administered by the British Bankers 
    \21\ See generally IBA, Methodology, available at https://www.theice.com/publicdocs/ICE_LIBOR_Methodology.pdf (describing 
IBA's current LIBOR calculation methodology); H.M. Treasury, The 
Wheatley Review of LIBOR: Final Report, Sept. 2012, available at 
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/191762/wheatley_review_libor_finalreport_280912.pdf (recommending reforms 
to LIBOR). See also Intercontinental Exchange (ICE), ICE LIBOR 
Evolution, Apr. 25, 2018, at 4, available at https://www.theice.com/publicdocs/ICE_LIBOR_Evolution_Report_25_April_2018.pdf (describing 
IBA's reforms to LIBOR since 2014). Among other revisions, IBA 
implemented changes to the way that panel banks form their LIBOR 
submissions by relying on a data-driven waterfall methodology.

    Following a public consultation by IBA launched in December 2020, 
on March 5, 2021,\22\ the FCA announced that publication of LIBOR would 
not be provided by any administrator or be compelled after the final 
publication on Friday, December 31, 2021, for the following: \23\

    \22\ See generally ICE LIBOR Feedback Statement on Consultation 
on Potential Cessation; IBA, ICE LIBOR Consultation on Potential 
Cessation, Dec. 2020, available at https://www.theice.com/publicdocs/ICE_LIBOR_Consultation_on_Potential_Cessation.pdf.
    \23\ FCA, FCA Announcement on Future Cessation and Loss of 
Representativeness of the LIBOR Benchmarks, Mar. 5, 2021, available 
at https://www.fca.org.uk/publication/documents/future-cessation-loss-representativeness-libor-benchmarks.pdf.

    (i) EUR LIBOR in all tenors;
    (ii) CHF LIBOR in all tenors;
    (iii) JPY LIBOR in the spot next, 1-week, 2-month, and 12-month 
    (iv) GBP LIBOR in the overnight, 1-week, 2-month, and 12-month 
tenors; and
    (v) USD LIBOR in the 1-week and 2-month tenors.
    The FCA further determined that GBP and JPY LIBOR in 1-month, 3-
month, and 6-month tenors would no longer be representative of the 
underlying market and economic reality they are intended to measure 
after December 31, 2021, and that representativeness would not be 
restored. Additionally, the FCA determined that USD LIBOR in the 
overnight and 12-month tenors would cease after June 30, 2023, and that 
USD LIBOR in the 1-month, 3-month, and 6-month tenors would not be 
representative after that date. The future of USD LIBOR in the 1-month, 
3-month, and 6-month tenors is uncertain because the FCA may decide to 
continue to publish those tenors based on a new methodology (i.e., on a 
synthetic basis). Following a public consultation, on September 29, 
2021, the FCA confirmed that it would require LIBOR's administrator to 
continue publishing GBP and JPY LIBOR in the 1-, 3-, and 6-month 
tenors, using a synthetic methodology based on term RFRs, through 
2022.\24\ The Commission is monitoring these developments and will 
consider LIBOR's cessation in certain currencies and tenors as it 
evaluates potential changes to the Clearing

[[Page 66479]]

Requirement, particularly because the LIBOR rates in four of the five 
LIBOR currencies serve as the floating rate in swap transactions that 
are currently subject to the Clearing Requirement.

    \24\ FCA, ``Further arrangements for the orderly wind-down of 
LIBOR at end-2021,'' Sept. 29, 2021, available at https://www.fca.org.uk/news/press-releases/further-arrangements-orderly-wind-down-libor-end-2021. The FCA also proposed to permit legacy use 
of synthetic GBP and JPY LIBOR in all contracts except cleared 
derivatives, citing clearinghouses' plans to transition cleared GBP, 
JPY, CHF, and EUR LIBOR rates to RFR contracts at the end of 2021. 
Accordingly, the FCA published an additional public consultation 
regarding the scope of legacy contracts that will be permitted to 
rely on the synthetic rates. FCA, ``CP21/29: Proposed decisions on 
the use of LIBOR (Articles 23C and 21A BMR),'' Sept. 29, 2021, 
available at https://www.fca.org.uk/publications/consultation-papers/cp21-29-proposed-decisions-libor-articles-23c-21a-bmr. The 
consultation closed on October 20, 2021. Id.

    Although LIBOR in particular has been a major focus for regulators, 
there are other interest rates that have been, or may in the future be, 
replaced by alternative reference rates. Additional IBORs and 
alternative reference rates are discussed in more detail below.

C. Identification of Alternative Reference Rates

    The Commission has supported efforts in the U.S. and around the 
world to identify alternative reference rates to replace LIBOR and 
other IBORs in the event that they become non-representative.
    In 2014, the Federal Reserve Board (FRB) and the Federal Reserve 
Bank of New York (FRBNY) convened the Alternative Reference Rates 
Committee (ARRC) as a body for private-market participants, alongside 
ex-officio banking and financial sector regulators, to identify 
alternatives to USD LIBOR and help ensure an orderly transition to 
alternative reference rates.\25\ The composition of the ARRC has 
changed over time, and currently includes a number of financial 
institutions, financial industry groups, and regulators, including the 
CFTC, the U.S. Department of the Treasury, and the U.S. Securities and 
Exchange Commission.\26\ On June 22, 2017, after studying several 
alternative reference rates and considering the input of market 
participants, the ARRC selected the Secured Overnight Financing Rate 
(SOFR) as its preferred alternative to USD LIBOR.\27\ SOFR measures the 
cost of overnight repurchase agreement transactions collateralized by 
U.S. Treasury securities.\28\ The FRBNY, in cooperation with the U.S. 
Office of Financial Research, first published SOFR on April 3, 
2018,\29\ and publishes the rate each New York business day at 8:00 
a.m. ET.\30\

    \25\ See generally ARRC, About [hereinafter ``About the ARRC''], 
available at https://www.newyorkfed.org/arrc/about. See also ARRC, 
ARRC Minutes for the December 12, 2014 Organizational Meeting, 
available at https://www.newyorkfed.org/medialibrary/microsites/arrc/files/2014/Dec-12-2014-ARRC-Minutes.pdf.
    \26\ About the ARRC.
    \27\ ARRC, ``The ARRC Selects a Broad Repo Rate as its Preferred 
Alternative Reference Rate,'' June 22, 2017, available at https://www.newyorkfed.org/medialibrary/microsites/arrc/files/2017/ARRC-press-release-Jun-22-2017.pdf. See also ARRC, Interim Report and 
Consultation, May 2016, at 13, available at https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2016/arrc-interim-report-and-consultation.pdf?la=en (discussing other 
alternative reference rates that the ARRC considered).
    \28\ FRBNY, Statement Introducing the Treasury Repo Reference 
Rates, Apr. 3, 2018 [hereinafter ``Statement Introducing the 
Treasury Repo Reference Rates''], available at https://www.newyorkfed.org/markets/opolicy/operating_policy_180403. See also 
FRBNY, Secured Overnight Financing Rate Data [hereinafter ``SOFR 
Data''], available at https://apps.newyorkfed.org/markets/autorates/
e%20of%20the; FRBNY, Additional Information about the Treasury Repo 
Reference Rates, available at https://www.newyorkfed.org/markets/treasury-repo-reference-rates-information.
    \29\ Statement Introducing the Treasury Repo Reference Rates.
    \30\ SOFR Data.

    SOFR is comprised of data from several sources: (1) Tri-party repo 
data; (2) the Fixed Income Clearing Corporation's (FICC) General 
Collateral Finance Repo data; and (3) bilateral Treasury repo 
transactions cleared through FICC.\31\ The ARRC selected SOFR as its 
preferred USD LIBOR alternative based on an assessment of a number of 
factors, including the depth of the underlying market, the robustness 
of the rate over time, the rate's usefulness to market participants, 
and consistency with IOSCO's Principles for Financial Benchmarks.\32\ 
SOFR is based on a far deeper pool of underlying transactions than USD 
LIBOR. According to the ARRC, since SOFR was first published, the 
volume of underlying transactions has averaged over $980 billion daily, 
and reflects trading by a diverse group of market participants.\33\ In 
comparison, the median daily volume of 3-month funding transactions 
between October 2016 and June 2017, underlying the most heavily-
referenced USD LIBOR tenor, amounted to less than $1 billion.\34\ The 
ARRC has developed a Paced Transition Plan, discussed below, to 
facilitate an orderly and incremental transition from USD LIBOR to 

    \31\ Id.
    \32\ ARRC Second Report at 6.
    \33\ ARRC, Frequently Asked Questions, Dec. 18, 2020, at 4-5, 
available at https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/ARRC-faq.pdf.
    \34\ ARRC Second Report at 1-3.
    \35\ Although SOFR is widely viewed as the primary replacement 
for USD LIBOR, and is preferred by the ARRC, other alternatives are 
available to market participants, including those who desire a 
benchmark with a credit risk component. One such alternative is 
AMERIBOR, which is administered by the American Financial Exchange 
(AFX) and is calculated based on actual borrowing costs between 
small and midsize banks that are AFX members. William Shaw, ``Libor 
Replacement Race Picks Up with Ameribor Swap Debut,'' Bloomberg, 
Dec. 3, 2020, available at https://www.bloomberg.com/news/articles/
llion%20on%20Tuesday. Another potential alternative is the ICE Bank 
Yield Index (IBYI), which ICE has proposed as a replacement for USD 
LIBOR. If implemented, IBYI would measure the average yields at 
which investors are willing to invest USD funds on a wholesale, 
senior, and unsecured basis in large, international banks over 1-
month, 3-month, and 6-month periods. IBA, U.S. Dollar ICE Bank Yield 
Index Update, May 2020, at 3, available at https://www.theice.com/publicdocs/Update_US_Dollar_ICE_Bank_Yield_Index_May_2020.pdf. 
Unlike USD LIBOR, IBYI would be fully transaction-based. See id. at 
3, 5-6. An additional potential alternative, Bloomberg's Short-Term 
Bank Yield Index (BSBY), is a credit-sensitive index which can be 
added to SOFR or used as a standalone benchmark. Bloomberg, 
``Bloomberg Confirms Its BSBY Short-Term Credit Sensitive Index 
Adheres to IOSCO Principles,'' Apr. 6, 2021, available at https://www.bloomberg.com/company/press/bloomberg-confirms-its-bsby-short-term-credit-sensitive-index-adheres-to-iosco-principles/. See also 
Bloomberg, Bloomberg Short-Term Bank Yield Index, available at 
20term%20structure; Bloomberg, Bloomberg Short-Term Bank Yield 
(BSBY) Index Methodology, Mar. 2021, available at https://assets.bbhub.io/professional/sites/10/BSBY-Methodology-Document-March-30-2021.pdf.

    Regulators and working groups in other jurisdictions are also 
endeavoring to identify, develop, and implement alternative reference 
rates.\36\ The FSB's November 2020 report Reforming Major Interest Rate 
Benchmarks highlights plans to develop alternatives for numerous other 
IBORs.\37\ A table of

[[Page 66480]]

those identified alternatives is included below.

    \36\ For further discussion of the ARRC and working groups in 
other LIBOR currency jurisdictions and key milestones, see generally 
International Swaps and Derivatives Association, Inc. et al. (ISDA), 
IBOR Global Benchmark Transition Report, June 2018, at 38-47 
[hereinafter ``IBOR Global Benchmark Transition Report''], available 
at https://www.isda.org/2018/06/25/ibor-global-benchmark-transition-
report/ibor-transition-report/. See also Working Group on Sterling 
Risk-Free Reference Rates (RFRWG) Top Level Priorities--2021, Bank 
of England, Jan. 2021, available at https://www.bankofengland.co.uk/
roadmap.pdf; European Central Bank, ``Working group on euro risk-
free rates,'' available at https://www.ecb.europa.eu/paym/interest_rate_benchmarks/WG_euro_risk-free_rates/html/index.en.html; 
The National Working Group on CHF Reference Rates, NWG Milestones, 
available at https://www.snb.ch/en/ifor/finmkt/fnmkt_benchm/id/finmkt_NWG_milestones; Study Group on Risk-Free Reference Rates, 
Bank of Japan, available at https://www.boj.or.jp/en/paym/market/sg/index.htm/; Financial Stability Board (FSB), Reforming Major 
Interest Rate Benchmarks, Nov. 20, 2020, at 14-29 [hereinafter 
``Reforming Major Interest Rate Benchmarks''], available at https://www.fsb.org/2020/11/reforming-major-interest-rate-benchmarks-2020-progress-report/.
    \37\ See generally Reforming Major Interest Rate Benchmarks at 
29-43, 54-55. See also Andreas Schrimpf and Vladislav Sushko, 
``Beyond Libor: a primer on the new reference rates,'' BIS Quarterly 
Review, Mar. 2019, at 35, available at https://www.bis.org/publ/qtrpdf/r_qt1903e.pdf; Bank of England, Preparing for 2022: What You 
Need to Know about LIBOR Transition, Nov. 2018, at 10, https://www.bankofengland.co.uk/-/media/boe/files/markets/benchmarks/what-
you-need-to-know-about-libor-transition.pdf; ISDA, et al., IBOR 
Global Benchmark Survey 2018 Transition Roadmap, Feb. 2018, at 32, 
2018.pdf; Euro Short-Term Rate ([euro]STR), European Central Bank, 
available at https://www.ecb.europa.eu/stats/
201%20October%202019; Steering Committee for SOR & SIBOR Transition 
to SORA, Timelines to Cease Issuance of SOR and SIBOR-Linked 
Financial Products, Mar. 31, 2021, available at https://abs.org.sg/docs/library/timelines-to-cease-issuance-of-sor-derivatives-and-sibor-linked-financial-products.pdf.

                                                    Alternative Reference Rates Identified for IBORs
                                                                 Identified         Alternative rate
             Currency                       Index             alternative rate        administrator             Secured                 Published
Australian dollar (AUD)...........  Bank Bill Swap Rate    Reserve Bank of        Reserve Bank of       No.....................  Yes.
                                     (BBSW).                Australia Interbank    Australia.
                                                            Overnight Cash Rate
Canadian dollar (CAD).............  Canadian Dollar        Canadian Overnight     Bank of Canada......  Yes....................  Yes.
                                     Offered Rate (CDOR).   Repo Rate Average
CHF...............................  LIBOR................  Swiss Average Rate     SIX Swiss Exchange..  Yes....................  Yes.
                                                            Overnight (SARON).
EUR...............................  LIBOR................  Euro Short-Term Rate   European Central      No.....................  Yes.
                                                            ([euro]STR).           Bank.
                                    Euro Overnight Index   [euro]STR............  European Central      No.....................  Yes.
                                     Average (EONIA) \38\.                         Bank.
                                    Euro Interbank         [euro]STR............  European Central      No.....................  Yes.
                                     Offered Rate                                  Bank.
GBP...............................  LIBOR................  Sterling Overnight     Bank of England.....  No.....................  Yes.
                                                            Index Average
Hong Kong dollar (HKD)............  Hong Kong Interbank    Hong Kong Dollar       Treasury Market       No.....................  Yes.
                                     Offered Rate (HIBOR).  Overnight Index        Association.
                                                            Average (HONIA).
JPY \39\..........................  LIBOR................  Tokyo Overnight        Bank of Japan.......  No.....................  Yes.
                                                            Average (TONA) Tokyo
                                                            Interbank Offered
                                                            Rate (TIBOR) Euroyen
Mexican peso (MXN)................  Term Interbank         Overnight TIIE.......  Banco de Mexico.....  Yes....................  Yes.
                                     Equilibrium Interest
                                     Rate (TIIE).
Singapore dollar (SGD)............  Singapore Dollar Swap  Singapore Overnight    Association of Banks  No.....................  Yes.
                                     Offer Rate (SOR).      Rate Average (SORA).   in Singapore.
                                    Singapore Interbank    SORA.................  Association of Banks  No.....................  Yes.
                                     Offered Rate (SIBOR).                         in Singapore.

    On July 6, 2021, the FSB published a progress report discussing the 
state of transition efforts and highlighting specific issues and 
challenges.\40\ In particular, the report highlighted the need for 
supervisory authorities to engage in a greater degree of coordination 
and communication to promote awareness of the urgency and scope of the 
transition away from LIBOR, and called on market participants to 
accelerate their adoption of alternatives. The report noted that, while 
significant progress had been made on some fronts, such as decreasing 
reliance on GBP LIBOR in favor of SONIA, transition efforts had lagged 
in other markets. For instance, the report observed that while use of 
SOFR derivatives had increased, activity in USD LIBOR-based derivatives 
had grown over the past three years, and the share of outstanding SOFR 
derivatives remained small compared with USD LIBOR derivatives.\41\

    \38\ Under a revised calculation methodology, EONIA is 
calculated as a spread of 8.5 basis points over the [euro]STR rate. 
EONIA is expected to be discontinued on January 3, 2022. Reforming 
Major Interest Rate Benchmarks at 18.
    \39\ Multiple alternative reference rates are being offered to 
succeed JPY LIBOR. See generally note 66, infra.
    \40\ FSB, Progress Report to the G20 on LIBOR Transition Issues, 
July 6, 2021, available at https://www.fsb.org/wp-content/uploads/P060721.pdf.
    \41\ Id. at 8-10.
    \42\ Andrew Bailey, ``The future of Libor,'' July 27, 2017, 
available at https://www.fca.org.uk/news/speeches/the-future-of-libor.

    As regulators and market participants in different jurisdictions 
work to identify alternative reference rates, the Commission 
anticipates that the interest rate swaps markets will evolve to 
incorporate those rates, with the goal of shifting all activity to the 
alternative reference rates before the relevant IBOR is discontinued. 
The Commission believes this process can occur organically, driven by 
market demand and DCO offerings.

D. Transition to Alternative Reference Rates

    The transition to alternative reference rates in substitution for 
LIBOR, in particular, has been a priority for regulators and market 
participants following an announcement by Andrew Bailey, then-Chief 
Executive of the FCA, on July 27, 2017, that the FCA would not use its 
authority to compel or persuade LIBOR panel banks to contribute to the 
benchmark after 2021.\42\ Bailey urged market participants to begin 
planning for the cessation of LIBOR and to start transitioning to the 
use of alternative reference rates, highlighting the work already done 
to identify alternative reference rates in the U.S., U.K., and other 
LIBOR currency

[[Page 66481]]

jurisdictions.\43\ Following Bailey's remarks, other regulatory 
officials, including previous Chairmen of the Commission and 
Commissioners, voiced support for an orderly transition from LIBOR to 
alternative reference rates.\44\

    \43\ Id.
    \44\ E.g., Jerome Powell and J. Christopher Giancarlo, ``How to 
Fix Libor Pains,'' The Wall Street Journal, Aug. 3, 2017, available 
at https://www.wsj.com/articles/how-to-fix-libor-pains-1501801028; 
CFTC, Opening Statement of Commissioner Brian D. Quintenz before the 
CFTC Market Risk Advisory Committee Meeting, July 12, 2018, 
available at https://www.cftc.gov/PressRoom/SpeechesTestimony/quintenzstatement071218; CFTC, Remarks of Commissioner Rostin Behnam 
at the ISDA/SIFMA AMG Benchmark Strategies Forum 2020, New York, New 
York, Feb. 12, 2020, available at https://www.cftc.gov/PressRoom/SpeechesTestimony/opabehnam14; CFTC, Statement of Chairman Heath P. 
Tarbert Regarding the Transition Away from IBORs, Nov. 24, 2020 
[hereinafter ``Statement of Chairman Tarbert''], https://www.cftc.gov/PressRoom/SpeechesTestimony/tarbertstatement112420.

    The transition from USD LIBOR to SOFR has been guided by the ARRC's 
Paced Transition Plan, which was first published in 2017 and has been 
adjusted over time.\45\ As currently formulated, the plan calls for 
five steps to facilitate market-wide adoption of SOFR: (i) The 
establishment of infrastructure for futures and/or OIS trading in SOFR 
by the second half of 2018; (ii) the start of trading in futures and/or 
bilateral, uncleared OIS that reference SOFR by the end of 2018; (iii) 
the start of trading in cleared OIS that reference SOFR in the 
effective federal funds rate (EFFR) price alignment interest (PAI) and 
discounting environment by the end of the first quarter of 2019; (iv) 
the Chicago Mercantile Exchange, Inc. (CME)'s and LCH.Clearnet Limited 
(LCH)'s conversion of discounting, and PAI and price alignment amount 
(PAA), from EFFR to SOFR with respect to all outstanding cleared USD-
denominated swaps by October 16, 2020; and (v) the ARRC's endorsement 
of a term reference rate based on SOFR derivatives markets by the end 
of the first half of 2021.

    \45\ See generally ARRC, Paced Transition Plan, available at 

    Although the first four steps of the ARRC's Paced Transition Plan 
were met on schedule,\46\ in March 2021, the ARRC announced that it 
would not be prepared to select an administrator to publish a forward-
looking term SOFR rate by the end of the first half of the year.\47\ 
The ARRC noted that this fifth step would be contingent on the 
continued development of sufficient liquidity in SOFR derivatives 
markets and a limited scope of use for the term rate.\48\ CME Group 
began publishing 1-, 3-, and 6-month forward-looking term SOFR 
benchmark rates in April 2021,\49\ and in May 2021, the ARRC announced 
that it planned to recommend CME Group as the administrator for a 
forward-looking term rate, once certain market indicators were met.\50\ 
On July 29, 2021, shortly after the introduction of the first phase of 
the Commission's Market Risk Advisory Committee's (MRAC) SOFR First 
initiative,\51\ discussed below, the ARRC formally endorsed CME Group's 
forward-looking term SOFR rates.\52\

    \46\ As stated above, the FRBNY began publishing SOFR on April 
3, 2018. Shortly thereafter, on May 7, 2018, CME Group Inc. (CME 
Group) launched SOFR futures contracts in the 1- and 3-month tenors. 
On May 16, 2018, ISDA added a definition of SOFR for use in 
contracts governed by ISDA Master Agreements. On October 1, 2018, 
ICE Futures Europe launched 1- and 3-month SOFR futures contracts. 
On July 18, 2018, LCH began clearing interest rate swaps referencing 
SOFR, with PAI and discounting linked to EFFR. On October 9, 2018, 
CME began clearing interest rate swaps referencing SOFR, with PAI 
and discounting linked to SOFR. Most recently, on October 16, 2020, 
CME and LCH converted discounting and PAI/PAA from EFFR to SOFR for 
all outstanding cleared USD-denominated swaps. Id.
    \47\ ARRC, ARRC Provides Update on Forward-Looking SOFR Term 
Rate, Mar. 23, 2020 [hereinafter ``ARRC Provides Update on Forward-
Looking SOFR Term Rate''], available at https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2021/arrc-press-release-term-rate-for-publication. At the time, the ARRC recommended that market 
participants use existing tools, such as SOFR averages and index 
data, instead of waiting for a term SOFR. Id. In May 2021, the ARRC 
released a set of market indicators that it would consider before 
recommending a forward-looking term SOFR rate. ARRC, ``ARRC 
Identifies Market Indicators to Support a Recommendation of a 
Forward-Looking SOFR Term Rate,'' May 6, 2021, available at https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2021/20210506-term-rate-indicators-press-release.
    \48\ ARRC Provides Update on Forward-Looking SOFR Term Rate.
    \49\ CME Group, CME Group Announces Launch of CME Term SOFR 
Reference Rates, Apr. 21, 2021, available at https://www.cmegroup.com/media-room/press-releases/2021/4/21/cme_group_announceslaunchofcmetermsofrreferencerates.html.
    \50\ ARRC, ``ARRC Releases Update on its RFP Process for 
Selecting a Forward-Looking SOFR Term Rate Administrator,'' May 21, 
2021, available at https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2021/20210521-ARRC-Press-Release-Term-Rate-RFP.pdf.
    \51\ The MRAC's SOFR First initiative is not Commission action 
and should be viewed as a best practice.
    \52\ ARRC, ``ARRC Formally Recommends Term SOFR,'' July 29, 
2021, available at https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2021/ARRC_Press_Release_Term_SOFR.pdf. Prior 
to its endorsement of CME Group's forward-looking term SOFR rates, 
the ARRC released a statement of best practices supporting the use 
of SOFR term rates in connection with business loan activities, but 
not in connection with the vast majority of derivatives markets 
activities, with the exception of end-user facing derivatives 
intended to hedge cash products that reference the SOFR term rate. 
ARRC, ARRC Best Practice Recommendations Related to Scope of Use of 
the Term Rate, July 21, 2021, available at https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2021/ARRC_Scope_of_Use.pdf.

    Since its inception, the ARRC has sought to support market-wide 
adoption of SOFR through the publication of guidance and 
recommendations for market participants, including periodic publication 
of transition objectives,\53\ recommendations related to the use of 
SOFR and best practices for SOFR adoption,\54\ and the identification 
of systems and processes likely to be affected by a transition from USD 
LIBOR to SOFR.\55\ The ARRC has also sought regulatory guidance and 
relief in order to facilitate an orderly transition away from 

    \53\ E.g., ARRC, 2020 Objectives, Apr. 17, 2020, available at 
https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2020/ARRC_2020_Objectives.pdf; ARRC, 2019 Incremental Objectives, June 6, 
2019, available at https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2019/ARRC_2019_Incremental_Objectives.pdf.
    \54\ E.g., ARRC, Addendum to Recommendations for Voluntary 
Compensation for Swaptions Impacted by Central Counterparty Clearing 
Houses' Discounting Transition to SOFR, Sept. 11, 2020 available at 
https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2020/ARRC-swaptions-recommendations.pdf; ARRC, Recommended Best 
Practices, Sept. 3, 2020, available at https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2020/ARRC-Best-Practices.pdf; 
ARRC, Vendor Best Practices, May 7, 2020, available at https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2020/ARRC-Vendor-Recommended-Best-Practices.pdf; ARRC, Recommendations for 
Interdealer Cross-Currency Swap Market Conventions, Jan. 24, 2020, 
available at https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2020/Recommendations_for_Interdealer_Cross-Currency_Swap_Market_Conventions.pdf; ARRC, Buy-Side Checklist for 
SOFR Adoption, Jan. 31, 2020, available at https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2020/ARRC_Buy_Side_Checklist.pdf; ARRC, Practical Implementation 
Checklist for SOFR Adoption, Sept. 19, 2019, available at https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2019/ARRC-SOFR-Checklist-20190919.pdf. The ARRC's resources include proposed 
guidance and recommended fallback language for cash market products. 
While many of the ARRC's recommended best practices for SOFR 
adoption are intended to apply to users of cash market products, 
some are specific to derivatives market participants. They include 
adherence to ISDA's Fallbacks Protocol, specific steps that dealers 
can take to promote liquidity in, and client access to, SOFR 
derivatives, and cessation of new trades in LIBOR derivatives 
maturing after 2021, except in limited circumstances.
    \55\ ARRC, Internal Systems & Processes: Transition Aid for SOFR 
Adoption, July 8, 2020, available at https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2020/ARRC-Internal-Systems-Processes-Transition-Aid.pdf.
    \56\ CFTC staff have addressed concerns raised by ARRC 
associated with the transition away from LIBOR in two separate sets 
of no-action letters issued in December 2019 and August 2020, 
including by issuing no action relief from the Clearing Requirement 
with respect to amendments to certain uncleared swaps. CFTC Staff 
Letter No. 19-28, Dec. 17, 2019, available at https://www.cftc.gov/csl/19-28/download as superseded by CFTC Staff Letter No. 20-25, 
Aug. 31, 2020, available at https://www.cftc.gov/csl/20-25/download.


[[Page 66482]]

    As the end of 2021 approaches, regulators, global standard-setting 
bodies, and alternative reference rate working groups have increased 
calls for market participants to accelerate their adoption of 
alternative reference rates. On November 30, 2020, the FRB, Office of 
the Comptroller of the Currency, and Federal Deposit Insurance 
Corporation released a joint statement encouraging banks to cease 
entering new contracts referencing USD LIBOR ``as soon as practicable'' 
and no later than December 31, 2021, in light of ``safety and soundness 
risks'' posed by continued use of the benchmark.\57\ The statement 
advised market participants that new contracts entered into before 
December 31, 2021, should utilize a non-LIBOR reference rate, or 
otherwise contain ``robust fallback language that includes a clearly 
defined alternative reference rate after LIBOR's discontinuation.'' 
\58\ On June 2, 2021, IOSCO echoed the joint statement in its Statement 
on Benchmarks Transition,\59\ and the FSB announced the publication of 
a set of documents designed to assist market participants and 
regulators in the transition, including a roadmap of steps for firms to 
take as they transition their portfolios to alternative reference 
rates, a white paper reviewing RFRs and term rates, and a statement 
encouraging regulators to set consistent expectations for the cessation 
of new USD LIBOR activity.\60\ Additionally, on July 13, 2021, the 
Commission's MRAC adopted SOFR First, a phased initiative to switch 
interdealer trading conventions from LIBOR to SOFR in a variety of 

    \57\ Board of Governors of the Federal Reserve System, Federal 
Deposit Insurance Corporation, and Office of the Comptroller of the 
Currency, Statement on LIBOR Transition, Nov. 30, 2020, available at 
    \58\ Id. The agencies stated that such circumstances may include 
``(i) transactions executed for purposes of required participation 
in a central counterparty auction procedure in the case of a member 
default, including transactions to hedge the resulting USD LIBOR 
exposure; (ii) market making in support of client activity related 
to USD LIBOR transactions executed before January 1, 2022, (iii) 
transactions that reduce or hedge the bank's or any client of the 
bank's USD LIBOR exposure on contracts entered into before January 
1, 2022; and (iv) novations of USD LIBOR transactions executed 
before January 1, 2022.'' Id. A fallback rate refers to the rate 
provided for use in a contract if the benchmark that the contract 
uses becomes unavailable or unrepresentative. ISDA, Understanding 
IBOR Benchmark Fallbacks, June 2, 2020, available at https://www.isda.org/a/YZQTE/Understanding-Benchmarks-Factsheet.pdf. Prior 
to ISDA's IBOR Fallbacks Supplement, discussed below, ISDA's 2006 
Definitions called for the counterparty serving as the calculation 
agent for a swap to calculate a fallback rate based on quotations 
obtained by polling banks, an approach which was viewed as 
unsustainable in the event of a permanent cessation to a benchmark 
rate. See IBOR Global Benchmark Transition Report at 15.
    \59\ See generally IOSCO, Statement on Benchmarks Transition, 
June 2, 2021, available at https://www.iosco.org/library/pubdocs/pdf/IOSCOPD676.pdf. See also ARRC, ARRC Recommends Acting Now to 
Slow USD LIBOR Use over the Next Six Weeks to be Well-Positioned to 
Meet Supervisory Guidance by Year-End, Oct. 14, 2021, available at 
(recommending market participants take steps to curtail new use of 
USD LIBOR consistent with federal supervisory guidance).
    \60\ FSB, ``FSB issues statements to support a smooth transition 
away from LIBOR by end 2021,'' June 2, 2021, available at https://www.fsb.org/2021/06/fsb-issues-statements-to-support-a-smooth-transition-away-from-libor-by-end-2021/.
    \61\ CFTC, ``CFTC Market Risk Advisory Committee Adopts SOFR 
First Recommendation at Public Meeting,'' July 13, 2021, available 
at https://www.cftc.gov/PressRoom/PressReleases/8409-21. The first 
phase of the initiative, covering USD-denominated linear swaps, 
began on July 26, 2021. The MRAC's SOFR First initiative mirrors a 
SONIA-First best practice adopted by the FCA and the Bank of 
England. See Bank of England, ``The FCA and the Bank of England 
encourage market participants in further switch to SONIA in interest 
rate swap markets,'' Sept. 28, 2020, available at https://www.bankofengland.co.uk/news/2020/september/fca-and-boe-joint-
statement-on-sonia-interest-rate-swap. The second phase of MRAC's 
SOFR First initiative, covering cross-currency swaps with CHF, GBP, 
JPY, and USD LIBOR legs, began on September 21, 2021. See CFTC, SOFR 
First: MRAC Subcommittee Recommendation, July 13, 2021 [hereinafter 
``SOFR First: MRAC Subcommittee Recommendation''], available at 
https://www.cftc.gov/media/6176/MRAC_SOFRFirstSubcommitteeRecommendation071321/download. The third 
phase of SOFR First, covering non-linear derivatives, launched on 
November 8, 2021. See CFTC, CFTC's Interest Rate Benchmark Reform 
Subcommittee Selects November 8 for SOFR First for Non-Linear 
Derivatives, Oct. 15, 2021, available at https://www.cftc.gov/PressRoom/PressReleases/8449-21. The fourth and final phase of SOFR 
First will cover exchange-traded derivatives. Timing for 
implementation of this phase remains to be determined by is expected 
to occur no later than December 31, 2021. Id.; SOFR First: MRAC 
Subcommittee Recommendation.

E. International Regulatory Developments

    Under Section 752(a) of the Dodd-Frank Act, the Commission, along 
with the Securities and Exchange Commission and other prudential 
regulators, was directed to consult and coordinate with non-U.S. 
regulatory authorities in order to establish consistent international 
standards for regulating swaps.\62\ The Commission complied with this 
directive in 2016 when it considered regulatory developments in swap 
clearing around the world for the Second Determination and noted that 
it was important to harmonize the Clearing Requirement with clearing 
mandates in other jurisdictions.\63\ Now, as in the past, the 
Commission is reviewing proposals and plans by other regulators to 
modify clearing mandates for interest rate swaps. The Commission has 
long recognized the interconnectedness of the interest rate swaps 
market, and is working cooperatively with other jurisdictions as they 
consider and adopt new clearing mandates.\64\

    \62\ Section 752 of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act, Public Law 111-203, 124 Stat. 1376 (2010).
    \63\ Second Determination, 81 FR 71203.
    \64\ See Second Determination, 81 FR 71223 (noting that ``the 
interest rate swaps market is global and market participants are 
interconnected''); First Determination, 77 FR 74287 (``The 
Commission is mindful of the benefits of harmonizing its regulatory 
framework with that of its counterparts in foreign countries. The 
Commission has therefore monitored global advisory, legislative, and 
regulatory proposals, and has consulted with foreign regulators in 
developing the final regulations.'').

    On May 20, 2021, the Bank of England launched a public consultation 
regarding a proposal to modify its clearing obligation in light of the 
cessation of LIBOR and adoption of alternative reference rates.\65\ The 
Bank of England proposed three key changes to its clearing obligation. 
First, on October 18, 2021, the requirement to clear EONIA OIS with a 
maturity of 7 days to 3 years would be replaced with a requirement to 
clear [euro]STR OIS for the same maturity range. Second, on December 6, 
2021, the requirement to clear JPY LIBOR basis and fixed-to-floating 
swaps would be removed.\66\ Third, on December 20, 2021, the 
requirement to clear GBP LIBOR basis and fixed-to-floating swaps, and 
FRAs, would be replaced with a requirement to clear SONIA OIS with an 
amended maturity range of 7 days to 50 years. According to the 
proposal, any changes to the clearing obligation would enter into force 
shortly after a number of DCOs complete a contractual conversion 
process, discussed below. On September 29, 2021, in a final policy 
statement, the Bank of England announced that it would adopt these 
changes as

[[Page 66483]]

proposed.\67\ However, citing recent announcements by Japanese 
authorities \68\ and anticipated changes in market activity,\69\ the 
Bank of England proposed to add TONA OIS to the scope of contracts 
subject to its clearing obligation. The proposal contemplates that the 
clearing obligation for TONA OIS would come into force on December 6, 
2021, and would cover a maturity range of 7 days to 30 years.\70\

    \65\ Bank of England, ``Derivatives clearing obligation--
modifications to reflect interest rate benchmark reform: Amendments 
to BTS 2015/2205,'' May 20, 2021, available at https://www.bankofengland.co.uk/paper/2021/derivatives-clearing-obligation-
The consultation closed on July 14, 2021. Id.
    \66\ The Bank of England initially proposed that the JPY LIBOR 
clearing obligation be removed, rather than replaced, due to 
uncertainty with respect to which alternative reference rate would 
become the market standard alternative for JPY LIBOR. While the 
Japanese Study Group on Risk-Free Reference Rates has identified 
TONA as its preferred JPY LIBOR alternative, the Japanese Bankers 
Association, which publishes TIBOR and Euroyen TIBOR, is considering 
retaining JPY TIBOR while discontinuing Euroyen TIBOR at the end of 
2024. See generally JBA TIBOR Administration, ``Current status and 
outlook of JBA TIBOR (March 2021),'' Mar. 2021, available at https://www.jbatibor./or.jp/english/about/
    \67\ Bank of England, ``Derivatives clearing obligation--
modifications to reflect interest rate benchmark reform: Amendments 
to BTS 2015/2205,'' Sept. 29, 2021, available at https://www.bankof/england.co./uk/paper/2021/derivatives-clearing-obligation-modifications-to-reflect-interest-rate-benchmark-reform.
    \68\ Japan's Financial Services Agency published a draft 
regulatory notice on September 8, 2021 requesting public comment on 
rules related to, among other things, the obligation to centrally 
clear over-the-counter derivatives transactions. Financial Services 
Agency Weekly Review No. 456, Sept. 16, 2021, available at: https://www.fsa./go.jp/en/newsletter/weekly/2021/456.html.
    \69\ Specifically, the Bank of England cited (i) a report from 
the Bank of Japan's Sub-Group for the Development of Term Reference 
Rates urging market participants to cease new JPY LIBOR swaps 
activity by the end of September 2021 and recommending that TONA 
become the primary replacement rate for JPY LIBOR; (ii) 
recommendations by liquidity providers to change quoting conventions 
from JPY LIBOR to TONA; and (iii) a September 8, 2021 consultation 
by Japan's Financial Services Agency regarding changes to its 
clearing obligation.
    \70\ Bank of England, ``Derivatives clearing obligation--
introduction of contracts referencing TONA: Amendment to BTS 2015/
2205,'' Sept. 29, 2021 [hereinafter ``Derivatives clearing 
obligation--introduction of contracts referencing TONA: Amendment to 
BTS 2015/2205''], available at https://www.bankof/england.co./uk/paper/2021/derivatives-clearing-obligation-introduction-of-contracts-referencing-tona; Bank of England, Public Register for the 
Clearing Obligation, available at https://www.bankofengland./co.uk/-
register.pdf. The consultation closed on October 27, 2021. 
Derivatives clearing obligation--introduction of contracts 
referencing TONA: Amendment to BTS 2015/2205.

    On July 9, 2021, the European Securities and Markets Authority 
(ESMA) published a public consultation on draft regulatory technical 
standards (RTS) amending ESMA's clearing and derivatives trading 
obligations.\71\ The draft RTS proposes to eliminate the clearing 
obligation for (i) GBP and JPY LIBOR swaps in the basis and fixed-to-
floating swap classes; (ii) GBP LIBOR swaps in the FRA class; and (iii) 
EONIA swaps in the OIS class.\72\ It also proposes to add a clearing 
obligation to the OIS class for [euro]STR and SOFR swaps (in each case, 
for a maturity range of 7 days to 3 years) and extend the maximum 
maturity range for SONIA OIS from 3 years to 50 years.\73\ Once ESMA 
finalizes the RTS, it will be submitted to the European Commission for 

    \71\ ESMA, ``Consultation Paper: On the clearing and derivative 
trading obligations in view of the benchmark transition,'' July 9, 
2021, available at https://www.esma./europa.eu/sites/default/files/
The consultation closed on September 2, 2021. Id. at 8.
    \72\ Id. at 37-39.
    \73\ Id.
    \74\ Id. at 8. The RTS will become effective on the later of 
January 3, 2022 or 20 days after publication in the Official Journal 
of the European Union. Id. at 58-59.

II. Market Adoption of Alternative Reference Rates

A. Industry Initiatives

    Consistent with calls for a broadly coordinated benchmark reform 
effort by the FSB Official Sector Steering Group, Financial Stability 
Oversight Council, and others, market participants have played a 
critical role in the identification, development, and adoption of 
alternative reference rates through leadership in and engagement with 
alternative reference rate working groups such as the ARRC, as well as 
through influencing numerous aspects of the adoption of alternative 
reference rates via the provision of feedback in public consultations 
by the ARRC, ISDA, ICE, and others.\75\ Market participants also have 
provided much of the infrastructure needed for increased market 
adoption of, and trading liquidity in, derivatives referencing 
alternative reference rates, including providing for the offering of 
alternative reference rate-linked futures contracts, clearing of 
alternative reference rate-linked swaps, and adjusting PAI and 
discounting methodology to rely on alternative reference rates.

    \75\ See generally ISDA, Summary of Responses to the ISDA 2020 
Consultation on How to Implement Pre-Cessation Fallbacks in 
Derivatives, May 14, 2020, available at https://www.isda./org/a/
ISDA, Summary of Responses to the ISDA Consultation on Final 
Parameters for the Spread and Term Adjustment Methodology, Nov. 15, 
2019, available at http://assets./isda.org/media/3e16cdd2/d1b3283f.pdf; ISDA, Anonymized Narrative Summary of Responses to the 
ISDA Consultation on Term Fixings and Spread Adjustment Methodology, 
Dec. 20, 2018, available at http://assets./isda.org/media/04d213b6/db0b0fd7.pdf; ARRC, ARRC Consultation on Swaptions Impacted by the 
CCP Discounting Transition to SOFR, Feb. 7, 2020, available at 

    One of the most significant industry initiatives to facilitate the 
transition from IBORs to alternative reference rates in interest rate 
swaps markets has been ISDA's efforts to update its standard contract 
documentation to reflect ongoing benchmark reform efforts, including 
(i) ISDA's 2020 IBOR Fallbacks Protocol, published on October 23, 2020, 
and (ii) ISDA's Supplement number 70 to the 2006 ISDA Definitions, 
finalized on October 23, 2020 and published and effective on January 
25, 2021 (IBOR Fallbacks Supplement).\76\ The IBOR Fallbacks 
Supplement, which applies to new cleared and uncleared derivatives 
contracts entered into on or after January 25, 2021 that incorporate 
the 2006 ISDA Definitions and reference any of the IBORs to which the 
supplement applies, provides that contracts referencing those IBORs 
will fall back to adjusted versions of the RFR identified for the 
relevant IBOR in the event that an IBOR ceases or, in the case of 
LIBOR, either ceases or is deemed non-representative.\77\ Concurrent 
with its publication of the IBOR Fallbacks Supplement, ISDA also 
launched an IBOR Fallbacks Protocol, which allows counterparties to 
uncleared derivatives transactions to bilaterally amend existing 
uncleared transactions to incorporate the fallbacks detailed in the 
Supplement, effectively allowing counterparties to apply the IBOR 
Fallbacks Supplement's amendments to legacy uncleared swaps entered 
into prior to the effective date of the IBOR Fallbacks Supplement.\78\ 
On March 5, 2021, following the FCA's statement that all 35 LIBOR 
settings will either permanently cease to be published or become non-
representative, ISDA released guidance explaining that its fallbacks 
will become effective on the date that each of the relevant settings 
will cease publication or become non-representative.\79\ The ARRC and 
regulators have called for widespread adherence to ISDA's IBOR 
Fallbacks Protocol as an important means of minimizing potential market 

[[Page 66484]]

as a result of a LIBOR cessation.\80\ As of November 2021, over 14,700 
parties had adhered to ISDA's Protocol.\81\

    \76\ ISDA, ``Amendments to the 2006 ISDA Definitions to include 
new IBOR fallbacks,'' Oct. 23, 2020, available at http://assets.isda.org/media/3062e7b4/23aa1658.pdf; ISDA, ISDA 2020 IBOR 
Fallbacks Protocol, Oct. 23, 2020 [hereinafter ``IBOR Fallbacks 
Protocol''], available at http://assets.isda.org/media/3062e7b4/08268161-pdf/.
    \77\ The following IBORs are within the scope of the IBOR 
and THBFIX. The IBOR Fallbacks Supplement also provides that if a 
specific LIBOR tenor is discontinued or declared non-representative, 
it is to be determined based on linear interpolation if the next 
longest and shortest tenor remain available. See generally IBOR 
Fallbacks Supplement. For instance, under ISDA's fallback 
methodology, between December 31, 2021 and June 30, 2023, the 1-week 
and 2-month USD LIBOR settings are to be calculated using linear 
    \78\ See generally IBOR Fallbacks Protocol.
    \79\ ISDA, Future Cessation and Non-Representative Guidance, 
Mar. 5, 2021, available at https://www.isda.org/a/dIFTE/ISDA-
    \80\ E.g., Statement of Chairman Tarbert; ARRC, ``ARRC Urges 
Timely and Widespread Adherence to the Protocol,'' Oct. 22, 2020, 
available at https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2020/ARRC_Press_Release_ISDA_Protocol.pdf; FSB, Global 
Transition Roadmap for LIBOR [hereinafter ``Global Transition 
Roadmap for LIBOR''], Oct. 16, 2020, at 2, available at https://www.fsb.org/wp-content/uploads/P161020-1.pdf.
    \81\ ISDA, List of Adhering Parties, https://www.isda.org/

    ISDA's IBOR Fallbacks Supplement also has provided DCOs with a 
template to adopt, with adjustments, changes that are required to 
transition cleared swaps referencing IBORs to alternative reference 
rates, in order to ensure that the swaps can continue to be risk-
managed. The FSB specifically urged providers of cleared products that 
reference IBORs to ensure that those products incorporate fallback 
provisions aligned with those in the IBOR Fallbacks Supplement.\82\ 
Several DCOs have adopted rule amendments to facilitate the use of the 
alternative reference rates provided for in the IBOR Fallbacks 
Supplement in cleared swap contracts.\83\

    \82\ Global Transition Roadmap for LIBOR at 2.
    \83\ ISDA's Fallbacks Supplement and changes to reference rates 
have prompted ISDA to undertake a comprehensive review of their 
interest rate swap definitions. As a result, ISDA has produced a new 
set of interest rate derivatives definitions that DCOs are 
incorporating into their rulebooks. E.g., LCH, LCH Limited Self-
Certification: 2021 ISDA Interest Rate Derivatives Definitions, 
Sept. 17, 2021, available at https://www.lch.com/system/files/media_root/FINAL%20-%20LCH%20self%20cert_2021%20ISDA%20Defs%202021%2009%2017%20v1.pdf; 
CME, CME Submission No. 21-431, CFTC Regulation 40.6(a) 
Certification, Amendments to CME Chapters 900 (``Interest Rate 
Products'') and 901 (``Interest Rate Swaps Contract Terms'') in 
Connection with the Implementation of 2021 ISDA Definitions for 
Over-the-Counter Interest Rate Swap Products, Sept. 17, 2021, 
available at https://www.cmegroup.com/content/dam/cmegroup/market-regulation/rule-filings/2021/9/21-431.pdf; Eurex, ECAG Rule 
Certification 074-21, Aug. 23, 2021, available at https://www.eurex.com/resource/blob/2754378/c6faf642c399f93edfb030274a0c79b4/data/ecag_cftc_filing_for_circular_074-21.pdf.

B. Availability of Clearing

    As the market for interest rate swaps moves away from IBORs to 
alternative reference rates, DCOs have started to transition their 
product offerings and are working to assist clearing members with the 
process of transferring positions. A number of DCOs have started 
clearing OIS in SOFR and other alternative reference rates.\84\ A table 
with clearing availability at DCOs registered under the CEA is included 
below. This table does not include DCOs exempt from registration under 
the CEA or any other central counterparty that is not a registered DCO 
where additional liquidity in alternative reference rate products may 

    \84\ Eurex, EurexOTC Clear Product List, available at https://www.eurex.com/resource/blob/227404/03073af977450b1834d84eae808c7a7e/data/ec15075e_Attach.pdf; CME, Cleared OTC Interest Rate Swaps, 
available at https://www.cmegroup.com/trading/interest-rates/cleared-otc.html#; CME, CME OTC IRS Supported Product List, 
available at https://www.cmegroup.com/trading/interest-rates/cleared-otc/files/cme-otc-irs-supported-product-list.xlsx; LCH, What 
We Clear, available at https://www.lch.com/services/swapclear/what-we-clear; LCH, Product Specific Contract Terms and Eligibility 
Criteria Manual, Oct. 15, 2021, available at https://www.lch.com/system/files/media_root/211015%20-%20Product%20Specific%20Contract%20Terms%20%28EMTA%20Template%20and%20JS%20deletions%29.pdf.

                                Alternative Reference Rate Clearing Availability
                                                                                    DCOs clearing the swaps
            Swap class                   Currency           Floating rate      (termination date range offered)
Basis Swaps......................  AUD.................  BBSW-AONIA.........  LCH (up to 31 yrs).
                                   CAD.................  CDOR-CORRA.........  LCH (up to 31 yrs).
                                   EUR.................  EURIBOR-[euro]ESTR.  CME (up to 51 yrs), Eurex (up to
                                                                               51 yrs), LCH (up to 51 yrs).
                                   GBP.................  LIBOR-SONIA........  Eurex (up to 51 yrs), LCH (up to
                                                                               51 yrs).
                                   JPY.................  LIBOR-TONA.........  Eurex (up to 31 yrs), LCH (up to
                                                                               41 yrs).
                                   SGD.................  SOR-SORA...........  LCH (up to 21 yrs).
                                   USD.................  LIBOR-SOFR.........  CME (up to 51 yrs), Eurex (up to
                                                         Fed Funds-SOFR.....   51 yrs), LCH (up to 51 yrs).
                                                                              CME (up to 51 yrs), Eurex (up to
                                                                               51 yrs), LCH (up to 51 yrs).
Overnight Index Swaps............  AUD.................  AONIA..............  CME (up to 31 yrs), LCH (up to 31
                                   CAD.................  CORRA..............  CME (up to 31 yrs), LCH (up to 31
                                   CHF.................  SARON..............  CME (up to 31 yrs), Eurex (up to
                                                                               31 yrs), LCH (up to 31 yrs).
                                   EUR.................  [euro]ESTR.........  CME (up to 51 yrs), Eurex (up to
                                                                               51 yrs), LCH (up to 51 yrs).
                                   GBP.................  SONIA..............  CME (up to 51 yrs), Eurex (up to
                                                                               51 yrs), LCH (up to 51 yrs).
                                   JPY.................  TONA...............  CME (up to 31 yrs), Eurex (up to
                                                                               31 yrs), LCH (up to 41 yrs).
                                   SGD.................  SORA...............  LCH (up to 21 yrs).
                                   USD.................  SOFR...............  CME (up to 51 yrs), Eurex (up to
                                                                               51 yrs), LCH (up to 51 yrs).

    Certain DCOs have observed that market participants identified some 
challenges with respect to implementing ISDA's fallbacks for both 
cleared and uncleared contracts: (1) The bifurcation of liquidity 
between trading in legacy IBOR contracts that reference alternative 
reference rates (a pool of contracts that would become less liquid over 
time with increasing adoption of alternative reference rates), and 
```new' OIS contracts''; and (2) significant costs related to the 
operational upgrades required to calculate floating rate coupons and 
update valuation methodologies.\85\ DCOs continue to consider how to 
address these concerns through discussions with their clearing members 
and other market participants. One way that certain DCOs are attempting 
to mitigate these problems is to transition outstanding cleared IBOR-
linked products to market standard RFR OIS through conversion events 
prior to the cessation of certain IBORs.

    \85\ CME, Cleared Swaps Considerations for IBOR Fallback and 
Conversion Proposal, Jan. 14, 2021, available at https://www.cmegroup.com/trading/interest-rates/files/cleared-swaps-considerations-for-ibor-fallbacks-and-conversion-proposal.pdf.


[[Page 66485]]

    For example, CME, Eurex, and LCH launched processes to replace 
cleared swaps contracts referencing EONIA outstanding after October 15, 
2021 with a conversion to [euro]STR.\86\ EONIA will be discontinued on 
January 3, 2022. The European Money Markets Institute publishes EONIA 
and has committed to publishing the benchmark rate until January 3, 
2022.\87\ Nonetheless, these DCOs have conducted an early transition 
from cleared positions in EONIA to [euro]STR. LCH plans to convert 
cleared CHF, EUR, and JPY LIBOR contracts outstanding at close of 
business on December 3, 2021, and cleared GBP LIBOR contracts 
outstanding at close of business on December 17, 2021, to standardized 
alternative reference rate contracts.\88\ CME and Eurex plan to convert 
cleared CHF LIBOR, JPY LIBOR, and GBP LIBOR contracts to standardized 
alternative reference rate contracts on the same timeline.\89\ DCOs may 
change these plans or decide to stop clearing other products in the 
lead up to the IBOR transition as well. The Commission encourages 
market participants to consider these changes to product offerings as 
they plan to transition their IBOR-linked swaps.

    \86\ See CME, CME Submission No. 21-413, CFTC Regulation 40.6(a) 
Certification, Notification Regarding Modification of Cleared Euro 
Overnight Index Average (``EONIA'') Overnight Index Swaps to 
Reference Euro Short Term Rate (``[euro]STR'') Ahead of Scheduled 
Discontinuation of EONIA, Sept. 29, 2021, available at https://www.cmegroup.com/content/dam/cmegroup/market-regulation/rule-filings/2021/9/21-413.pdf; Eurex Clearing, ECAG Rule Certification 
081-21, Sept. 16, 2021 [hereinafter ``ECAG Rule Certification 081-
21''], available at https://www.eurex.com/resource/blob/2781070/61d1fccdd00bc1a06753877a5fa3f483/data/ecag_cftc_filing_for_circular_081-21.pdf; Eurex, Eurex Clearing 
Circular 111/20 EurexOTC Clear: Summary of Consultation on the 
Transition Plan for Transactions Referencing the EONIA Benchmark, 
Dec. 14, 2020, available at https://www.eurex.com/ec-en/find/circulars/clearing-circular-2373634; LCH, LCH Limited Self-
Certification: Benchmark Reform--Rates Conversion, Sept. 29, 2021, 
(hereinafter ``LCH Limited Self-Certification: Benchmark Reform--
Rates Conversion'') available at https://www.lch.com/system/files/media_root/FINAL%20-%20LCH%20self%20cert_Benchmark%20Reform%202021%2009%2029%20v3%20%28Clean%29.pdf.
    \87\ European Money Markets Institute, About EONIA, available at 
    \88\ LCH Limited Self-Certification: Benchmark Reform--Rates 
Conversion; LCH, Supplementary Statement on LCH's Solution for 
Outstanding Cleared LIBOR Contracts, LCH Circular No. 4146, Mar. 18, 
2021, available at https://www.lch.com/membership/ltd-membership/ltd-member-updates/supplementary-statement-lchs-solution-outstanding.
    \89\ ECAG Rule Certification 081-21; CME, CME IBOR Conversion 
Plan for Cleared Swaps, June 9, 2021, available at https://www.cmegroup.com/trading/interest-rates/files/cleared-swaps-considerations-for-ibor-fallbacks-and-conversion-plan.pdf. On 
September 24, 2021, CME converted LIBOR-linked basis swaps to pairs 
of offsetting fixed-to-floating swaps.

    The Commission anticipates that DCO product offering changes (i.e., 
discontinuing clearing for certain LIBOR products after the contract 
conversion date) may make the current Clearing Requirement impossible 
to satisfy. The Commission is monitoring the evolution of conversion 
plans, and potential conversion-related challenges, and seeks input 
from the public about this and other topics in the sections below.

C. Current Trends in Alternative Reference Rates

    The effort to shift trading liquidity and outstanding notional 
derivatives positions from IBORs to alternative reference rates by the 
industry has begun, but certain currency and rate pairs have seen more 
activity in alternative reference rates than others. Clarus Financial 
Technology (CFT) submitted a response to IBA's December 2020 
consultation that outlined their conclusions regarding data on global 
trading activity in cleared OTC derivatives and exchange-traded 
interest rate derivatives that reference LIBOR in each of the five 
LIBOR currencies.\90\ CFT commented that based on its review of 
derivatives data: (i) Market participants have shifted derivatives 
activity from GBP LIBOR to SONIA positions; (ii) markets have developed 
to facilitate the transfer of USD LIBOR positions to SOFR, but market 
participants have not made significant progress transferring those 
positions; and (iii) there has been some progress in transferring 
derivatives activity from CHF and JPY LIBOR to those benchmarks' 
respective alternative reference rates, but progress has been slow.\91\

    \90\ IBA, List of Non-Confidential Responses, at 3, available at 
    \91\ Id.

    CFT observed that there have been low volumes of EUR LIBOR-linked 
derivatives historically and did not comment on the cessation of EUR 
LIBOR.\92\ Data reported by ISDA also indicates that there has been 
only limited activity in EUR LIBOR-based derivatives.\93\

    \92\ Id. at 4.
    \93\ ISDA SwapsInfo, updated weekly, available at http://isda.informz.net/z/cjUucD9taT04MzA0NjUwJnA9MSZ1PTg0MzY2NjIxNyZsaT03MDQ4MTA0OA/index.html. ISDA SwapsInfo collects data from the Depository Trust & 
Clearing Corporation (DTCC) swap data repository, and in the past 
had included data from the Bloomberg swap data repository (BSDR 

    With respect to the USD LIBOR market, CFT observed that trading 
activity in USD derivatives markets has not changed materially in 
response to the calls to transition away from USD LIBOR. CFT stated 
that the although SOFR products trading doubled from 2019 to 2020, it 
remains at low levels. In October 2020, as market participants managed 
the transition from the EFFR to SOFR discounting and PAI/PAA at LCH and 
CME, SOFR trading activity increased.\94\ CFT believes this data 
demonstrates that market participants are able to use SOFR derivatives 
to manage risks when there is demand. The decline in SOFR trading after 
the October 2020 discounting event shows that market participants were 
able to use SOFR derivatives when needed, but have not continued to use 
SOFR and instead have reverted to USD LIBOR. As demonstrated by the 
data below, trading in SOFR swaps has not approached the levels of USD 
LIBOR trading, in notional value or trade count, but it has increased 
substantially in recent weeks.

    \94\ IBA, List of Non-Confidential Responses, at 11, available 
at https://www.theice.com/publicdocs/List_of_non-confidential_responses.pdf. See also ARRC, Progress Report: The 
Transition from U.S. Dollar LIBOR, at 6, Mar. 22, 2021, available at 

    The data on GBP LIBOR swaps activity presents evidence that market 
participants are transitioning to SONIA derivatives. CFT attributes 
some of the success of the transition to the statements made by UK 
regulators.\95\ Overall, the swaps activity in SONIA provides evidence 
that market participants are shifting derivatives positions in GBP to 

    \95\ IBA, List of Non-Confidential Responses, at 8, available at 

    Levels of trading and swaps activity in CHF SARON and JPY TONA had 
previously not been rising rapidly year over year, but data from more 
recent months in 2021 have shown substantial increases in the notional 
value traded and number of trades alongside a significant decrease in 
the trading of CHF LIBOR and JPY LIBOR. Recently, CFT highlighted rapid 
shifts from the low levels of trading in CHF SARON and JPY TONA in 
March 2021, to almost 50 percent of the market risk in those 
currencies.\96\ More detailed data related to notional value traded and 
trade count for certain interest rate swaps in recent weeks.

    \96\ CFT, RFR Trading is Now at 50% in CHF and JPY!, Sept. 15, 
2021, available at https://www.clarusft.com/rfr-trading-is-now-at-50-in-chf-and-jpy/.

[[Page 66486]]

                                       Notional Value of Swaps Traded \97\
                                      [Measured in U.S. dollars, billions]
                                                           Week ending on     Week ending on     Week ending on
               Currency and floating rate                 October 22, 2021   October 29, 2021   November 5, 2021
USD LIBOR..............................................            1,814.4            2,065.2            1,698.0
    SOFR...............................................              294.4              291.0              282.3
GBP LIBOR..............................................               88.3               31.6              164.1
    SONIA..............................................            1,218.8              668.8              931.3
CHF LIBOR..............................................                6.2                3.3                1.2
    SARON..............................................                9.2               11.6               14.2
JPY LIBOR..............................................                5.7                6.4                6.8
    TONA...............................................               36.9               33.5               47.0
EURIBOR................................................              785.3              805.4            1,052.4
    [euro]STR..........................................              178.6              292.0              324.1

                                       Trade Count of Swaps Reported \98\
                                                           Week Ending on     Week Ending on     Week Ending on
               Currency and floating rate                 October 22, 2021   October 29, 2021   November 5, 2021
USD LIBOR..............................................             12,443             13,742             12,397
    SOFR...............................................              2,935              3,093              2,805
GBP LIBOR..............................................              1,768                552              1,224
    SONIA..............................................              3,201              3,557              4,002
CHF LIBOR..............................................                124                154                 34
    SARON..............................................                199                277                291
JPY LIBOR..............................................                541                412                250
    TONA...............................................                515                586                626
EURIBOR................................................              7,559              7,798              9,152
    [euro]STR..........................................                666                733              1,009

    As discussed above, clearing in the alternative reference rates is 
available at more than one DCO. According to data from LCH's SwapClear 
service, clearing in certain alternative reference rates has increased 
over the past few months. Most notably, the outstanding notional amount 
of cleared SOFR swaps has increased substantially.

                   LCH SwapClear Statistics \99\ Notional Amounts Outstanding as of Month-End
                                      [Measured in U.S. dollars, billions]
                                                            Month ending       Month ending       Month ending
               Currency and floating rate                   August 2021       September 2021      October 2021
USD SOFR...............................................           7,292.45           8,595.71          11,068.33
GBP SONIA..............................................          23,041.30          25,089.41          29,795.27
CHF SARON..............................................             633.74             725.71             888.89
JPY TONA...............................................             593.83             776.84           1,073.85
EUR [euro]STR..........................................           1,959.42           2,329.71          19,075.77

    Finally, Commission staff has been monitoring data reported to 
DTCC's swap data repository and CME's swap data repository in order to 
track the rate of voluntary clearing in certain RFRs. Reviewing swap 
transaction data from January 2021 to October 2021, the Commission 
staff has estimated that over 90% of the volume of fixed-to-floating 
swaps referencing USD SOFR, GBP SONIA, CHF SARON, JPY TONA, and EUR 
[euro]STR has been cleared on a voluntary basis.\100\ The Commission 
will continue to monitor the level of cleared and uncleared swaps 
activity in the alternative reference rates as the transition away from 
IBORs proceeds.

    \97\ ISDA SwapsInfo, updated weekly, available at http://isda.informz.net/z/cjUucD9taT04MzA0NjUwJnA9MSZ1PTg0MzY2NjIxNyZsaT03MDQ4MTA0OA/index.html. ISDA SwapsInfo collects data from DTCC, and in the past 
had included data from BSDR LLC.
    \98\ ISDA SwapsInfo, updated weekly, available at http://isda.informz.net/z/cjUucD9taT04MzA0NjUwJnA9MSZ1PTg0MzY2NjIxNyZsaT03MDQ4MTA0OA/index.html. ISDA SwapsInfo collects data from DTCC swap data 
repository, and in the past had included data from BSDR LLC.
    \99\ LCH SwapClear reports statistics on the monthly 
registration volume as well as the notional amounts outstanding at 
the month end of swaps referencing one of the listed RFRs, updated 
monthly, available at https://www.lch.com/services/swapclear/volumes/rfr-volumes.
    \100\ Commission staff believes that the volume of swap activity 
cleared is a better measure of overall clearing rates than the 
number of transactions submitted for clearing. Commission staff has 
prepared these conservative estimates by excluding certain 
transactions between affiliated entities. Such affiliated entities 
may or may not be subject to the Clearing Requirement.

III. Request for Information

    The Commission recognizes that information related to the 
transition away from IBORs is changing daily, and that the information 
reflected in certain statements above may have changed as of the 
publication of this request for information. The Commission invites 
commenters to provide new or updated information related to any aspect 
of the transition away from IBORs that may offer additional background 
for the Commission to consider. In addition, the Commission encourages 
commenters to include the assigned number of the specific request for 
information below in their responses in

[[Page 66487]]

order to facilitate staff's review of information provided.

A. Swaps Subject to the Clearing Requirement

    The Commission requests information related to a DCO's ability to 
continue clearing or offering clearing services for swaps that 
reference GBP LIBOR, JPY LIBOR, CHF LIBOR, and 1-week and 2-month USD 
LIBOR after December 31, 2021, EONIA after January 3, 2022, or in the 
case of remaining USD LIBOR tenors and SGD SOR-VWAP, after June 30, 
2023, including but not limited to the following:
    1. The Commission requests that DCOs provide, for swaps currently 
subject to the Clearing Requirement referencing each of GBP LIBOR, JPY 
LIBOR, CHF LIBOR, USD LIBOR, and SGD SOR-VWAP, in each of the fixed-to-
floating swap, basis swap, FRA, and OIS classes, data for the month 
ending November 30, 2021 concerning: (A) The amount of notional 
cleared, including as a percentage of total notional cleared of all 
swaps; (B) total notional outstanding, including as a percentage of 
total notional outstanding; and (C) total number of clearing members 
clearing such swaps, including as a percentage of the total population 
of clearing members.
    2. The Commission requests that DCOs provide an assessment of the 
DCO's ability to conduct an auction of a defaulting clearing member's 
positions in swaps referencing LIBOR after December 31, 2021 (not 
including certain USD LIBOR tenors and SGD SOR-VWAP that will continue 
until June 30, 2023), if the DCO has not conducted, or is not planning 
on conducting, a conversion event.
    3. The Commission requests that DCOs provide an assessment of the 
DCO's ability to transfer or port to other clearing members a 
defaulting clearing member's positions in swaps referencing LIBOR after 
December 31, 2021 (not including certain USD LIBOR tenors and SGD SOR-
VWAP that will continue until June 30, 2023).
    4. The Commission would like to know whether any clearing member 
firms of DCOs have experienced challenges with respect to the 
transition from any IBOR to an alternative reference rate, and any 
related DCO conversion event, including whether and how such challenges 
were resolved, and whether clearing member firms believe there are any 
steps the Commission can take to help resolve ongoing challenges.
    5. The Commission requests that registered swap dealers and other 
market participants provide data related to market participants' 
outstanding net LIBOR risk as of November 30, 2021.

B. Swaps Not Currently Subject to the Clearing Requirement

    6. The Commission requests that DCOs file submissions with the 
Commission under Commission regulation 39.5 for any swaps that have 
been or may be identified as swaps that reference an alternative 
reference rate that are not currently subject to the Clearing 
Requirement and for which a DCO has not previously filed a submission 
under Commission regulation 39.5(b).
    7. The Commission requests that DCOs provide for swaps that 
reference one of the alternative reference rates including, GBP SONIA, 
JPY TONA, CHF SARON, [euro]STR, and USD SOFR in each of the fixed-to-
floating swap, basis swap, FRA, and OIS classes, data from the quarter 
ending September 30, 2021 concerning: (A) The amount of notional 
cleared, including as a percentage of total notional cleared of all 
swaps; (B) total notional outstanding, including as a percentage of 
total notional outstanding; and (C) total number of clearing members 
clearing such swaps, including as a percentage of the total population 
of clearing members.

IV. Request for Comment

A. General Request for Comment

    The Commission requests comment on all aspects of the swap clearing 
requirement and any related regulations that may be affected by the 
transition away from LIBOR and the other IBORs to alternative reference 
rates. The Commission seeks comments on these matters generally and 
commenters are encouraged to address any relevant matters that are not 
specifically identified in the requests for comment below. Detailed 
instructions on how and when to submit comments in response to this 
request for comment are located at the beginning of this document in 
the ADDRESSES and DATES sections.
    In responding to this general request for comment, and the specific 
requests for comment below, the Commission encourages commenters to 
provide empirical support for their arguments and analyses. 
Furthermore, comments that identify and provide specific information or 
data that would be relevant to the Commission's considerations 
discussed in this request for comment would be of the greatest 
assistance to the Commission.
    As noted above in the Commission's request for information section, 
the Commission recognizes that the information related to the IBOR 
transition is changing daily and that some of the information reflected 
in the statements above may have changed as of the publication of this 
request for comment. The Commission invites commenters to assume 
certain facts or information that may have changed or been released 
after this document was published for comment, and would appreciate 
comments identifying any relevant information that the Commission may 
have missed in its review. The Commission welcomes comments based on 
new or updated information when responding to the questions below. In 
addition, the Commission encourages commenters to include the assigned 
number of the specific request for comment below in their responses in 
order to facilitate staff's review of information provided.

B. Specific Requests for Comment

i. Current Swap Clearing Requirement-Related Questions
    1. Are market participants concerned about access to clearing for 
certain swaps that are subject to the Clearing Requirement? If so, are 
there any Commission actions or regulatory amendments that could 
facilitate the IBOR transition for market participants?
    2. Please discuss recommendations for how the Commission should 
modify its Clearing Requirement under Commission regulation 50.4 and 
any related advantages or disadvantages (including anticipated costs) 
that might be expected from a specific approach.
    3. More specifically, should the Commission modify the termination 
date range, or any other specifications, with respect to SONIA OIS, 
AONIA OIS, CORRA OIS or any other OIS that are subject to the Clearing 
Requirement and for which the index has been nominated as an 
alternative reference rate? If such an amendment is recommended, please 
discuss a potential timeline for considering and adopting a 
modification and the reasons for adopting such timeline.
    4. Should the Commission revise the clearing requirement related to 
the SGD SOR-VWAP rate as part of the initial LIBOR transition or should 
market participants be given additional time to consider changes to SGD 
SOR-VWAP Clearing Requirement because it is based on USD LIBOR (and may 
continue until 2023)?
ii. Swap Clearing Requirements for Alternative Reference Rates
    5. Are market participants concerned about access to clearing for 
certain swaps that reference alternative reference rates and are not 

[[Page 66488]]

subject to the Clearing Requirement? If so, please explain current or 
anticipated barriers to clearing swaps in alternative reference rates.
    6. Are there any steps related to the SOFR transition that have not 
been completed that would enable a significant number of market 
participants to submit swaps referencing SOFR to clearing? Are there 
specific metrics or products associated with the new SOFR rate that 
need to be developed before swaps referencing SOFR can be used by a 
broad range of market participants?
    7. Would requiring the clearing of swaps referencing SOFR or other 
alternative reference rates that are not currently subject to the 
Clearing Requirement affect the ability of a DCO to comply with the 
CEA's core principles for DCOs?
    8. Are there specific data the Commission should consider in 
determining whether significant notional amount and liquidity exists in 
swaps referencing SOFR or other alternative reference rates that are 
not currently subject to the Clearing Requirement?
    9. Are there specific thresholds that the Commission should apply 
with respect to notional amount and liquidity in determining whether 
swaps referencing SOFR or other alternative reference rates that are 
not currently subject to the Clearing Requirement should be subject to 
the clearing requirement?
    10. Have market participants observed sufficient outstanding 
notional exposures and trading liquidity in swaps referencing SOFR 
during both stressed and non-stressed market conditions to support a 
clearing requirement?
    11. Is there adequate pricing data for DCO risk and default 
management of swaps referencing SOFR? Why or why not?
    12. What are the challenges that DCOs may face or have faced in 
accepting new SOFR swaps or swaps referencing other alternative 
reference rates for clearing that are not currently subject to the 
Clearing Requirement from a governance, rule framework, operational, 
resourcing, or credit support infrastructure perspective?
    13. Would requiring the clearing of swaps referencing SOFR mitigate 
systemic risk? Please explain why or why not and provide supporting 
    14. Would requiring the clearing of swaps referencing SOFR increase 
risk to DCOs? If so, are DCOs capable of managing that risk? Please 
explain why or why not and provide supporting data.
    15. Would adopting a clearing requirement for swaps referencing 
SOFR or other alternative reference rates that are not currently 
subject to the Clearing Requirement materially and beneficially affect 
trading activity in those swaps?
    16. How and when should the Commission evaluate whether to require 
clearing for interest rate swaps denominated in USD that reference 
alternative reference rates other than SOFR, such as credit-sensitive 
benchmark rates (e.g., Ameribor and BSBY)? Provided that one or more 
DCOs have made such swaps available for clearing, are there additional 
factors or considerations beyond those specified in Section 
2(h)(2)(D)(ii) of the CEA that the Commission should consider in 
determining whether to adopt a clearing requirement for such swaps?
    17. Would adopting a clearing requirement for a new product that 
references an alternative reference rate, or expanding the scope of the 
Clearing Requirement to cover additional maturities, create conditions 
that increase or facilitate an exercise of market power over clearing 
services by any DCO that would: (i) Adversely affect competition for 
clearing services and/or access to product markets for swaps 
referencing alternative reference rates (including conditions that 
would adversely affect competition for these product markets and/or 
increase the cost of such swaps); or (ii) increase the cost of clearing 
services? Please explain why or why not and provide supporting data.
    18. What new information, if any, should the Commission consider as 
it prepares to review whether interest rate swaps linked to the 
alternative reference rates should be subject to a clearing 
requirement? Are there specific regulatory requirements that the 
Commission should consider when reviewing overall market conditions, 
such as uncleared margin requirements implemented by prudential 
regulators and/or the uncleared margin requirements for swap dealers 
and major swap participants under part 23 of the Commission's 
iii. New Swap Product Documentation
    19. With respect to all new swap products, including those 
referencing alternative reference rates, is there additional 
documentation that the Commission should require DCOs to submit with 
swap submissions beyond the documentation that Commission regulation 
39.5 currently requires?
    iv. Swap Clearing Requirement Specifications
    20. The Commission recognizes that at this time a majority of the 
swaps subject to the Clearing Requirement fall within the fixed-to-
floating swap class. That may change as new alternative reference rates 
are adopted and will be characterized as OIS or other types of swaps. 
Should the Commission designate any additional classes of swaps or 
specifications for purposes of classifying swaps under Commission 
regulation 50.4? Do DCOs or market participants have suggestions about 
how to reorganize or structure the classes of swaps subject to the 
clearing requirement under Commission regulation 50.4? Should the 
Commission include a new class covering variable notional swaps as a 
table under Commission regulation 50.4(a)?
v. Cost-Benefit Considerations
    21. The Commission requests comment from DCOs and market 
participants on the nature and extent of any operational, compliance, 
or other costs they may incur as a result of potential changes to the 
Clearing Requirement in response to the market-wide shift to 
alternative reference rates. Please provide supporting data.

    Issued in Washington, DC, on November 17, 2021, by the 
Robert Sidman,
Deputy Secretary of the Commission.

    Note:  The following appendix will not appear in the Code of 
Federal Regulations.

Appendix To Swap Clearing Requirement Amendments To Account for the 
Transition from LIBOR and Other IBORs to Alternative Reference Rates--
Commission Voting Summary

    On this matter, Acting Chairman Behnam and Commissioner Stump voted 
in the affirmative. No Commissioner voted in the negative.

[FR Doc. 2021-25450 Filed 11-22-21; 8:45 am]