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CFTC Finalizes Rule Regarding LIBOR Transition Clearing Requirement Determination For Certain Interest Rate Swaps – Commodities/Derivatives/Stock Exchanges



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On August 12, the Commodity Futures Trading Commission
(“CFTC”) issued a final rule amending its Regulation 50.4(a) clearing requirements for
swaps.

The latest in a series of rulemaking that is supportive of the
financial industry’s transition away from interbank benchmarks,
the new final rule adjusts CFTC clearing requirements to reflect
this change.

(1) Effective 30 days from publication in the Federal
Register:

– interest rate swaps referencing certain LIBOR rates (GBP
LIBOR, CHF LIBOR, JPY LIBOR, EUR LIBOR and EONIA) no longer require
clearing to a registered or exempt derivatives clearing
organization (DCO);

– interest rate swaps referencing certain alternative reference
rates (CHF Swiss Average Rate Overnight, JPY Tokyo Overnight
Average Rate, and EUR Euro Short Term Rate (€STR)) will
require clearing by a DCO;

– the termination date range is extended for GBP Sterling
Overnight Index Average overnight index swaps.

(2) Effective October 31:

– overnight index swaps referencing USD Secured Overnight
Financing Rate (SOFR) and SGD Singapore Overnight Rate Average
(SORA) require clearing by a DCO.

(3) Effective July 1, 2023:

– interest rate swaps pegged to USD LIBOR and SGD Swap Offer
Rate (SOR-VWAP) no longer require clearing.

CFTC Chairman Rostin Behnam remarked that the new rule provides “legal
certainty and regulatory transparency for DCOs, market
participants, and our fellow international authorities,” and
Commissioners Kristin N. Johnson and Christy Goldsmith Romero
issued supportive statements.

Notably, Commissioner Caroline D. Pham concurred, but set the
stage for no-action relief requests in her statement, emphasizing the importance of
“international harmonization and a practical approach” to
rulemaking, suggesting that the effective date should coincide with
the Bank of England’s proposed effective date of October 31 and
that the CFTC should hold off on clearing requirements for interest
rate swaps tied to Swiss and Singaporean rates until their
respective regimes have published their own swap-clearing
requirements.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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