The Federal Reserve today adopted a final rule that implements the Adjustable Interest Rate Act by identifying benchmark rates based on the Secured Overnight Financing Rate that will replace Libor in certain financial contracts after June 30, 2023. The final rule ensures that Libor contracts adopting a benchmark rate selected by the Fed will not be interrupted or terminated following Libor’s replacement. The rule will be effective 30 days after publication in the Federal Register.
As required by the law, the final rule identifies replacement benchmark rates based on SOFR to replace overnight, one-month, three-month, six-month, and 12-month Libor in contracts subject to the act, the Fed said. The contracts include U.S. contracts that do not mature before publication of Libor ends (on June 30, 2023) and that lack adequate “fallback” provisions that would replace Libor with a practicable replacement benchmark rate.
In response to comments, the final rule restates safe harbor protections contained in the Libor Act for selection or use of the replacement benchmark rate selected by the Fed. It also clarifies who would be considered a “determining person” able to choose to use the replacement benchmark rate selected by the Fed for use for certain Libor contracts, the agency said.
In related news, the Financial Stability Board today published a progress report on the Libor transition. Among other things, the report calls for market participants to take active steps to address existing legacy contracts in preparation for the end of the remaining panel-based U.S. dollar Libor settings and for the winding down of temporary synthetic Libor rates.