CFTC Adopts LIBOR-related Mandatory Clearing Changes

The CFTC adopted a final rule to remove the mandatory clearing requirements relating to LIBOR. The final rule "replaces them with requirements to clear interest rate swaps referencing overnight, nearly risk-free reference rates."

Under the final rule:

30 days after publication in the Federal Register:

• mandatory clearing will no longer be applicable to GBP LIBOR, CHF LIBOR, JPY LIBOR, and EONIA in each of fixed-to-floating swap, basis swap, forward rate agreement and OIS classes;
• OIS swaps referencing SARON, TONA (each with range of 7 days to 30 years) and ESTR (7 days to 3 years) are subject to mandatory clearing;
• expands the termination date range for SONIA OIS to 50 years;

as of Oct. 31, 2022:

• OIS referencing SOFR (7 days to 50 years) and SORA (7 days to 10 years) are required to be cleared;

as of July 1, 2023:

• mandatory clearing no longer applicable for swaps referencing USD LIBOR and SOR-VWAP in fixed-to-floating swap, basis swap, and FRA classes.

The final rule will become effective 30 days after publication in the Federal Register.

CFTC Commissioners Kristin N. Johnson, Christy Goldsmith Romero and Caroline D. Pham supported the final rule. Ms. Pham urged the CFTC to take further steps in terms of international harmonization, saying that she would (i) not impose a clearing requirement on SARON or SORA until Swiss or Singaporean regulators, as applicable, do so and (ii) make the initial effective date October 31, 2022, to be consistent with the Bank of England's proposals.