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    CFTC Issues Rule on IBOR Swaps, Extends RFI for Climate Risk

    August 24, 2022

    The Commodity Futures Trading Commission (CFTC) finalized a rule modifying the interest rate swap clearing requirements and extended, from August 08, 2022 to October 07, 2022, the comment period on a Request for Information (RFI) on climate-related financial risks. The Request for Information covers all aspects of climate-related financial risk and CFTC seeks responses on questions specific to data, scenario analysis and stress testing, risk management, disclosure, product innovation, voluntary carbon markets, digital assets, greenwashing, financially vulnerable communities, and public-private partnerships and engagement.

    The final rule on swaps removes the requirements to clear interest rate swaps referencing the London Interbank Offered Rate (LIBOR) and certain other interbank offered rates (IBORs). it replaces these requirements with requirements to clear interest rate swaps referencing overnight, nearly risk-free reference rates. The final rule updates the swaps required to be submitted for clearing to a derivatives clearing organization (DCO), or an exempt DCO, and the compliance dates for such swaps. The final rule promotes financial stability, mitigates systemic risk, and provides legal certainty and regulatory transparency for DCOs, market participants, and other international authorities. The rule becomes effective on September 23, 2022, except for amendatory instructions 3 and 5: 

    • With effect from September 23, 2022, the rule removes the requirement to clear swaps referencing British pound (GBP) LIBOR, Swiss franc (CHF) LIBOR, Japanese yen (JPY) LIBOR, and Euro (EUR) Overnight Index Average (EONIA) in each of the fixed-to-floating swap, basis swap, forward rate agreement, and overnight index swap (OIS) classes, as applicable. The rule also adds a requirement to clear OIS referencing CHF Swiss Average Rate Overnight (SARON), JPY Tokyo Overnight Average rate (TONA) and Euro Short-Term Rate (€STR), in addition to extending the stated termination date range for GBP Sterling Overnight Index Average (SONIA) OIS.
    • With effect from October 31, 2022, the final rule adds a requirement to clear OIS referencing USD Secured Overnight Financing Rate (SOFR) and Singapore dollar (SGD) Singapore Overnight Rate Average (SORA).
    • With effect from July 01, 2023, the final rule removes the requirement to clear interest rate swaps referencing USD LIBOR and SGD Swap Offer Rate (SOR-VWAP) in each of the fixed-to-floating swap, basis swap, and forward rate agreement classes, as applicable.

     

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    Keywords: Americas, US, Banking, Derivatives, Swaps, Libor, IBORS, Interest Rate Swaps, Risk Free Rates, EONIA, ESG, Climate Change Risk, Benchmark Reforms, CFTC

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