Statement of Commissioner Christy Goldsmith Romero Regarding Notice of Proposed Rulemaking to Amend Swap Clearing Requirement to Transition Further Away from LIBOR
May 09, 2022
The amendments the Commission proposes today support initiatives designed to reduce risk posed by reliance on the London Interbank Offered Rate (LIBOR), and other interbank offered rates (IBORs), as benchmark reference rates. A decade ago, allegations of manipulation of LIBOR led to government investigations. In the years since, regulators in the U.S. and abroad have recognized the need to replace LIBOR with benchmarks that promote market integrity and carry far less risk. However, it has always been recognized that this transition would be a complex and lengthy undertaking. As a result of significant coordinated efforts across the public and private sectors, great progress has been made in the transition to alternative reference rates that are less susceptible to manipulation. I commend Chairman Behnam for his steadfast leadership in pursuing a successful transition away from LIBOR. I commend the Commission’s staff for their steadfast efforts to be thoughtful, careful and comprehensive at each step of the transition, including the step that brings us here today.
I will support the Notice of Proposed Rulemaking to amend the swap clearing requirement to account for the market shift to alternative reference rates that would significantly limit risk. This step would add to the successful progress in, and the Commission’s commitment to, a smooth transition away from LIBOR.
Sound functioning benchmark rates promote the stability and integrity of derivatives markets. The Commission and its staff have worked closely with regulatory counterparts, in the U.S. and abroad, to support and harmonize initiatives to decrease reliance on IBORs and to encourage market adoption of overnight, nearly risk-free reference rates (RFRs). The Commission’s proposal recognizes that liquidity in IBOR-linked interest rate swaps has continued to transition to RFRs, as IBORs are discontinued or become nonrepresentative. The proposal also recognizes that, in light of U.S.-led initiatives including SOFR First, there is decreasing market reliance on USD LIBOR—and significant liquidity in, and voluntary clearing of, overnight index swaps (OIS) referencing the Secured Overnight Financing Rate (SOFR).
I support the objective of aligning the Commission’s approach with that of its regulatory counterparts in other jurisdictions who are similarly in the process of revisiting their clearing obligations to account for the transition away from LIBOR. International coordination is necessary for a successful transition to reduce benchmark-related risk. International coordination also will help to ensure that central clearing remains, globally, a pillar of post-crisis financial regulatory reform.
I thank the Commission’s staff for all of their detailed and comprehensive work on the proposal, and look forward to reviewing the public comments provided in response.