LCH SwapClear completes Libor to Sofr transition

LSEG’s post-trade division, LCH SwapClear, successfully completed the second and the final conversion last week, following the first USD Libor conversion event last month.

LCH SwapClear completed its final conversion from Libor to Sofr on 20 May in a significant milestone for the transition of the global interest rate benchmark.

According to the business the conversion involved $45 trillion of aggregate notional, with the second tranche by far the largest conversion undertaken to-date with a value of $43 trillion.

LCH SwapClear has converted around 600,000 USD Libor contracts into Sofr – the new reference rate in USD – in aggregate.

The completion follows LCH SwapClear’s first USD LIBOR conversion earlier this year on 22 April. Susi de Verdelon, head of SwapClear and listed sates, LCH said: “the final USD Libor conversion event went seamlessly, supporting the market in bringing about the end of USD LIBOR in the cleared OTC swaps market.”

She added that “as the first CCP to offer clearing of USD swaps referencing Sofr, the completed conversion demonstrates the key role that LCH has played in the transition”.

The Libor transition has been ongoing since 2017 when the UK Financial Conduct Authority (FCA) fired the starting gun, highlighting the urgency of the change and setting out concrete benchmarks.

The FCA confirmed that Libor settings for sterling, euro, Swiss franc, Japanese yen, and the one-week and two-month US dollar would cease on 31 December 2021, with the remaining US dollar settings ceasing after 30 June this year.

Since the announcement, participants have been following roadmaps outlined by regulators as the benchmark has been gradually taken out of circulation. This includes a move to SONIA for UK sterling derivatives, and SOFR for US dollar derivatives.

The transition has encounters various setbacks since 2017, such as delays due to the Covid-19 pandemic. In March 2021, language and content specialist SDL revealed that due to the pandemic, 54% of sell-side firms surveyed experienced disruption in their transition away from Libor.

LCH has confirmed that it will continue to support reform efforts, including “the upcoming conversions of SGD SOR to SORA and THB THBFIX to THOR, as well as the Canadian market transition from CDOR to CORRA in 2024”.