CFTC’s Giancarlo Warns on ‘Zombie Libor,’ Emphasizes Need for Benchmark Transition

The Commodity Futures Trading Commission is working to “troubleshoot” issues in transitioning CFTC-regulated derivatives contracts from the London Interbank Offered Rate to the new Secured Overnight Financing Rate, CFTC Chairman Christopher Giancarlo said today. Libor is increasingly not expected to be sustained beyond 2021, and the Alternative Reference Rates Committee has recommended SOFR as its preferred alternative.

Giancarlo warned that it is important to transition not just new derivatives or securities from Libor but also legacy trades. “Zombie Libor” — still referenced by legacy contracts but no longer supported — could put into disarray “the whole ecosystem developed to support efficient risk-transfer in our global markets,” he said. “Hence, it is critical that legacy positions too move from Libor.”

“We continue to work with fellow regulators to encourage and coordinate — but not dictate the details of — the enormous project of Libor benchmark reform,” Giancarlo added. “The forward course for the U.S. markets is clear — it is away from Libor toward SOFR.”