CFTC Staff Issue Statement on Libor Transition

In a joint statement today, the Commodities Futures Trading Commission’s Market Participants Division and Division of Market Oversight emphasized to market participants and swap execution facilities the importance of an orderly transition away from Libor. “The use of Libor rates in new contracts should, with very limited exceptions, be ceased as soon as practicable and no later than Dec. 31, 2021, to avoid these risks,” the statement said. “Further, market participants should accelerate their conversion of legacy Libor contracts and SEFs should continue to focus on efforts to build liquidity in alternative reference rates in their markets.”

The statement—which does not have legal force or create new obligations—comes a day after the CFTC’s Market Risk Advisory Committee recommended “SOFR First” as a market best practice. 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.

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.