CFTC issues ‘no-action’ letters to swaps market participants on Libor transition

Three divisions of the CFTC have issued ‘no action’ relief for firms active in the swaps market transitioning from Libor to alterative benchmark.

Swaps dealers and market participants in the US that are transitioning from Libor to alternative benchmarks have been granted temporary relief by the derivatives watchdog.

The move means that counterparties can qualify for time-limited relief from other regulatory requirements, including uncleared swap margin rules and swap clearing requirements, when amending swaps referencing Libor, or other interbank offered rates, if certain conditions are met.

‘No action’ letters were issued by three divisions of the Commodity Futures Trading Commission (CFTC), including the Division of Swap Dealer and Intermediary Oversight, the Division of Market Oversight, and the Division of Clearing and Risk.

The Divisions stated they will not recommend that the CFTC take enforcement action for failing to comply with certain swap clearing and trading requirements until 31 December 2021, when the Libor benchmark is finally withdrawn.

“I am pleased that the CFTC is one of the first agencies out of the gate to provide Libor-transition relief,” said CFTC chairman Heath Tarbert. “Next year is going to be crucial for the transition away from Libor. Firms that fail to do so will put themselves and the global financial system at risk. The CFTC remains committed to working with market participants and our fellow regulators on this critical issue.”

UK and US regulatory authorities decided to shut down the controversial Libor benchmark following years of scandal, alleged manipulation and a decline in activity. In 2017, 20 banks agreed to continue making submissions to Libor until 2021 to ensure a smooth transition as the benchmark is phased out.

Libor is being replaced by the sterling overnight index average (SONIA) as the alternative benchmark in the UK, and the secured overnight financing rate (SOFR) for US Dollar derivatives and contracts.