CFTC Proposes LIBOR-Related Mandatory Clearing Changes
The CFTC proposed to amend the mandatory clearing requirement to remove LIBOR and other interbank offered rates and include risk-free rates ("RFRs") such as SOFR.
Under proposed amendments to CFTC Rule 50.4(a) ("Classes of Swaps Required to be Cleared"), the CFTC would remove all LIBOR and EUR EONIA swaps from mandatory clearing and add corresponding RFRs as being subject to mandatory clearing (but not RFR-IBOR basis swaps).
Under a phased implementation approach, the CFTC is proposing that:
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non-USD LIBOR (fixed-floating, basis and FRA) and EUR EONIA (fixed-floating OIS) swaps would no longer be subject to mandatory clearing 30 days after publication of the final rule in the Federal Register;
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OIS swaps referencing SOFR, ESTR, SARON, OTNA, SORA and SONIA would become subject to mandatory clearing 30 days after publication of the final rule in the Federal Register; and
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USD LIBOR (fixed-floating, basis and FRA) and SGD SOR-VWAP (fixed-floating) swaps would no longer be subject to mandatory clearing from July 1, 2023.
Commentary
Most market participants likely thought of mandatory clearing for RFRs as inevitable. The timing of transition is most significant here. In particular, it is notable that the CFTC is essentially proposing to make SOFR subject to mandatory clearing prior to USD LIBOR phasing out. This contrasts with the approach for non-USD currencies, where the relevant IBORs have already phased out (from end of 2021).