SEC Urges Market Participants to Prepare for Libor Transition

The Securities and Exchange Commission late Friday issued a statement warning of the potential consequences for financial markets if the London Interbank Offered Rate, or Libor, is discontinued. Underscoring the need for preparation by market participants including public companies, investment advisers, investment companies and broker dealers, the SEC said it is “actively monitoring the extent to which market participants are identifying and addressing these risks.”

While the SEC said it would not endorse any one particular reference rate, it noted that “the Commission staff is monitoring whether the adoption of a variety of replacement rates for USD Libor instead of the emergence of a dominant successor could limit the effectiveness of all replacement benchmarks.” The Alternative Reference Rates Committee has identified the Secured Overnight Financing Rate, or SOFR, as the preferred alternative for U.S. dollar Libor.

The SEC urged companies to review existing contracts and determine their Libor exposure, ensure that new contracts include effective fallback language and evaluate additional effects that the discontinuation of Libor could have on their businesses.