In remarks before the Alternative Reference Rates Committee's Symposium on the Secured Overnight Financing Rate ("SOFR"), CFTC Acting Chair Rostin Behnam concluded that "a successful transition" from LIBOR "would only be achieved if we move away from LIBOR altogether and adopt a new model that makes it obsolete."
Mr. Behnam emphasized that:
- although the SOFR-based derivatives market has gradually expanded, it continues to be a small portion of the overall volume of LIBOR-traded cash and derivatives products;
- relevant regulators and counterparties will be "apt to take notice" of any large, active firms that still have yet to adhere to the ISDA 2020 IBOR Fallbacks Protocol;
- the SOFR First Initiative, which recommends that interdealer brokers supplant the trading of LIBOR linear swaps with SOFR linear swaps by July 26, 2021, should be widely adopted as a best practice, "given the sheer size of the USD interest rate swaps market"; and
- banking entities should adopt a "habit" of SOFR First.
He also stated that "the most effective way to break from LIBOR is to cease entering new LIBOR contracts."
Commentary
Following Chairman Behnam's remarks, he moderated a panel that included private sector participants and individuals from the Federal Reserve Board and the Financial Conduct Authority. The panel discussed the transition to SOFR in the derivatives markets and the SOFR First Initiative. Unsurprisingly, the panelists commentary aligned with the remarks of Chairman Behnam.
Primary Sources
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