Release Number 8469-21

CFTC’s Interest Rate Benchmark Reform Subcommittee Issues User Guide for the Transition of Exchange-Traded Derivatives Activity to SOFR

December 16, 2021

— The Interest Rate Benchmark Reform Subcommittee, a subcommittee of the Commodity Futures Trading Commission’s Market Risk Advisory Committee (MRAC), today issued a user guide for the transition of newly-executed exchange-traded derivatives from LIBOR to the Secured Overnight Financing Rate (SOFR) pursuant to the MRAC’s approval of the SOFR First Initiative at its July 13, 2021 meeting. Acting Chairman Rostin Behnam is the sponsor of MRAC.

SOFR First, a series of market best practice recommendations, is a four-phase initiative that represents a prioritization of trading in SOFR rather than USD LIBOR for particular market segments and products, which is designed to help market participants decrease reliance on USD LIBOR in light of US banking supervisory guidance that such activity should cease as soon as practicable and in any event by December 31, 2021. The first three phases of SOFR First were focused on the interdealer markets for certain USD interest rate derivative products with transition dates occurring on July 26,2021 for linear swaps, September 21, 2021 for cross-currency swaps (and additional cross-currency swaps on December 13, 2021), and November 8, 2021 for non-linear derivatives. [See CFTC Press Release Nos. 8394-21, 8466-21, and 8449-21].

Publication of the user guide for the transition of newly-executed exchange-traded derivatives from LIBOR to SOFR completes the fourth and final phase of the SOFR First Initiative. The user guide outlines best practices for market participants to consider in transitioning new exchange-traded derivatives activity to SOFR activity in the near term. The user guide encourages all market participants to ensure operational capability to transact in SOFR exchange-traded derivatives as soon as possible, and states that it would be a best practice for all market participants to replace use of LIBOR with SOFR for new contracts, including exchange-traded derivatives, after end-2021.

Because there is no identifiable “interdealer” market for exchange traded instruments, the Subcommittee could not determine a specific date prior to end-2021 on which dealers should transition exchange-traded interdealer derivatives activity from LIBOR to SOFR, and instead encourages all market participants to adopt the best practice of replacing use of LIBOR with SOFR in new contracts after end-2021.

See SOFR First User Guide for Exchange-Traded Derivatives here and under Related Links.

SOFR First is the work of the MRAC and does not necessarily reflect the views of the Commodity Futures Trading Commission.