CFTC Panel Approves ‘SOFR First’ Rate Transition Plan

As part of regulators’ efforts to facilitate the ongoing transition away from Libor, the Commodity Futures Trading Commission’s Market Risk Advisory Committee today recommended “SOFR First” as a market best practice. The full CFTC must now vote on the recommendation.

SOFR First is a four-phase initiative for switching trading conventions from Libor to the Secured Overnight Financing Rate, the Alternative Reference Rates Committee’s preferred Libor replacement, for U.S. dollar-denominated linear interest rate swaps, cross currency swaps, non-linear derivatives and exchange traded derivatives.

Phase one would occur on July 26, when interdealer brokers would replace their trading of Libor linear swaps with trading of SOFR linear swaps. Libor linear swap screens would remain available for informational purposes—but not trading purposes—until Oct. 22, 2021, after which they would be turned off altogether.

With certain tenors of Libor set to stop publishing as soon as the end of 2021, regulators have heightened expectations for bankers to cease issuing instruments that reference Libor but that mature after Libor ceases publication, as well as to ramp up efforts to introduce fallback provisions in Libor contracts.