ARRC Issues Recommendations on Risk-Free Rates in Cross-Currency Swaps

The Alternative Reference Rates Committee today released a document offering preliminary considerations for the use of risk-free rates in interdealer cross-currency swaps. Cross-currency swaps currently reference the London Interbank Offered Rate and other interbank offered rates, but with Libor’s future past 2021 uncertain, the ARRC is providing resources to help market participants transition contracts to risk-free rates like the Secured Overnight Financing Rate, a risk-free rate that is the ARRC’s recommended replacement for Libor.

Today’s release was developed by a subgroup of ARRC. It outlines potential conventions for interdealer trading of RFR-RFR and RFR-IBOR cross-currency swaps. The document also covers discussions with the International Swaps and Derivatives Association about potential benefits from a template that would allow market participants to ensure that both legs of a legacy cross-currency swap referencing IBORs would move together to successor rates.