CFTC staff provided additional no-action relief relating to the transition of swaps that reference the London Interbank Offered Rate ("LIBOR") and other interbank offered rates (collectively, "IBORs").

The CFTC revised letters amend and restate previous letters from December 2019 (see previous coverage), which provided relief for (i) requirements applicable to swap dealers, (ii) the trade execution requirement and (iii) mandatory clearing. CFTC staff stated that the additional relief will smooth the transition, particularly for older legacy swaps, by removing "regulatory obstacles to the adoption of potential protocols" and updating fallback procedures in the event an IBOR becomes non-representative or ceases to exist.

Each of the letters notes that the additional updates are primarily intended to respond to requests from the Alternative Reference Rates Committee ("ARRC") from July 20, 2020 and June 16, 2020, along with further discussions with the ARRC. (The ARRC previously submitted to the CFTC a list of issues and additional requests related to the July 20 letter.) The new letters cite changes in order to, among other things, (i) harmonize further with relief previously granted by the Prudential Regulators, (ii) accommodate amendments relating to the change in discounting rates used by central counterparties ("CCPs") (including amendments to swaptions and Credit Support Annexes to align rates on cash collateral) and (iii) permit changes to maturity or total effective notional amount "only to the extent necessary to accommodate the operational differences between [the old rate and the new rate]."

  • Letter No. 20-23. The Division of Swap Dealer and Intermediary Oversight ("DSIO") letter amends and restates relief primarily related to Part 23 of the CFTC regulations (i.e., relief for swap dealer-related requirements) granted in Letter 19-26.
  • Letter No. 20-24. The Division of Market Oversight ("DMO") letter amends and restates relief related to the trade execution requirement under CEA Section 2(h)(8) granted in Letter 19-27.
  • Letter No. 20-25. The Division of Clearing and Risk ("DCR") letter amends and restates relief related to the clearing requirement and related exceptions granted in Letter 19-28.

[Note: Links are found below to comparison files of the new letters against the original versions. The comparisons are rough in nature and may be inaccurate due to formatting or similar changes.]

Commentary

Although the CFTC did not include a summary of the particular changes to the previous relief, in broad strokes the letters appear to expand the scope of the prior relief in response to the ARRC recommendations. The CCP discounting-related changes are entirely new, but the staff also made a number of subtle but potentially significant amendments to the prior relief, including (i) expanding the scope of amendments (or use of new basis swaps) that qualify for relief; (ii) expanding the scope of relief under Regulation 23.431(a) to include mid-market marks under Regulation 23.431(a)(3)(i); (iii) providing confirmations relief under Regulation 23.501 for bilateral agreements (in addition to the use of a multilateral protocol); (iv) expanding the relief granted in connection with the end-user exception from mandatory clearing (while adding new reminders of swap dealers' obligations related to use of the end-user exception); and (v) aligning the DCR relief more closely with the DSIO relief. (The DCR letter, in particular, contains a substantial rewrite as compared with the changes made in the DSIO and DMO letters.)

Primary Sources

  1. CFTC No-Action Letter 20-23: Revised No-Action Positions to Facilitate an Orderly Transition of Swaps from Inter-Bank Offered Rates to Alternative Benchmarks
  2. CFTC No-Action Letter 20-24: Revised Staff No-Action Relief from the Trade Execution Requirement to Facilitate an Orderly Transition from Inter-Bank Offered Rates to Alternative Risk-Free Rates
  3. CFTC No-Action Letter 20-25: Revised Staff No-Action Relief from the Swap Clearing Requirement for Amendments to Legacy Uncleared Swaps to Facilitate an Orderly Transition from Inter-Bank Offered Rates to Alternative Risk-Free Rates
  4. Comparison - CFTC No-Action Letter 20-23 and 19-26
  5. Comparison - CFTC No-Action Letter 20-24 and 19-27
  6. Comparison - CFTC No-Action Letter 20-25 and 19-28
  7. CFTC Press Release: CFTC Provides Additional Relief to Market Participants Transitioning from LIBOR

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