Swaps dealers have been handed additional relief by the US derivatives watchdog amid the transition from the Libor and other interbank reference rates to alternative benchmarks.
The US Commodity Futures Trading Commission (CFTC) issued several revised ‘no-action letters’ outlining the conditions under which counterparties can qualify for additional relief for certain trade execution and clearing requirements, as well as swap dealer and uncleared margin requirements.
“Today’s relief will help smooth the transition away from interbank offered rates (IBORs), particularly with respect to older, legacy swaps that are sitting on the books of dealers and their clients, and in particular end-users around the world,” said chairman of the CFTC Heath Tarbert.
The latest no-action relief from the US derivatives regulator follows initial temporary relief handed to market participants active in the swaps market in December. The documents ensure that the CFTC will not take enforcement action for firms failing to comply with certain regulatory requirements.
Counterparties could 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.
“This relief will remove regulatory obstacles to the adoption of potential protocols updating robust fallback procedures in the event that an IBOR ceases or becomes non-representative,” the CFTC’s Tarbert added. “Also, the relief will help market participants continue managing their swap portfolios as clearinghouses implement their planned transition of discount rates towards new reference rates, another vital step in moving the derivatives markets away from IBORs.”
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.