CFTC Subcommittee Recommends Transition Dates for Interdealer Swap Market Trading Conventions

With certain tenors of Libor set to sunset at the end of 2021, the Commodity Futures Trading Commission’s Interest Rate Benchmark Reform Subcommittee today announced that it has voted to recommend that beginning July 26, interdealer brokers replace trading of Libor linear swaps with trading of U.S. dollar linear swaps tied to the Secured Overnight Financing Rate, the Alternative Reference Rates Committee’s preferred Libor alternative.

The CFTC also recommended keeping interdealer broker Libor linear swap screens available for informational purposes—but not trading purposes—until Oct. 22, 2021, after which they should be turned off altogether. The ARRC noted that once this convention switch is in place, it “expects that its market indicators for a SOFR term rate will have been met, allowing the ARRC to formally recommend the CME SOFR term rates very shortly thereafter.”

“This important step will increase the volume of transactions quoted in SOFR, and thus fulfill the final market indicator for the implementation of a term rate for SOFR,” said Federal Reserve Vice Chairman for Supervision Randal Quarles. “As a result, term SOFR will be available upon implementation of the change in quoting conventions, removing the last obstacle to using SOFR as a replacement reference rate. There is now no excuse to delay transition as the path that leads beyond Libor could not be clearer.”