CFTC Proposes Swap Clearing Rule to Address Benchmark Rate Transition

The proposed rule would update the swaps required to be submitted for clearing to a derivatives clearing organization (DCO) or an exempt DCO under part 50 of the CFTC regulations, along with the table of compliance dates for the CFTC swap clearing requirement. The proposed amendments would modify the interest rate swap clearing requirement to reflect the market shift away from swaps that reference Interbank Offered Rates (IBORs) to swaps that reference risk-free reference rates. Thirty days after publication of the final rule in the Federal Register, the rule as it is now being proposed would 

• remove swaps denominated in British pound (GBP), Swiss franc (CHF), and Japanese yen (JPY) that reference LIBOR as a floating rate index from each of the fixed-to-floating swap, basis swap, and forward rate agreement classes, as applicable.
• remove swaps denominated in Euro (EUR) that reference Euro Overnight Index Average (EONIA) as a floating rate index from the Overnight Index Swap (OIS) class.
• add swaps denominated in USD, EUR, CHF, JPY, and Singapore Dollar (SGD) to the OIS class.
• change the maximum stated termination date range for swaps denominated in GBP that reference the Sterling Overnight Index Average (SONIA) as a floating rate index in the OIS class to 50 years, for a total termination date range of 7 days to 50 years.

In addition, effective July 01, 2023, if adopted, the proposed rule would 

• remove swaps denominated in USD that reference LIBOR as a floating rate index from each of the fixed-to-floating swap, basis swap, and forward rate agreement classes
• remove swaps denominated in SGD that reference the Singapore Swap Offer Rate (SOR-VWAP) as a floating rate index from the fixed-to-floating swap class

Comment Due Date: FR+30 days

Keywords: Americas, US, Banking, Securities, Derivatives, Swaps, Benchmark Reforms, LIBOR, Alternative Reference Rates, Overnight Index Swaps, Swap Clearing, Risk-Free Rates, Lending, Basel, IBOR Reform, Interest Rate Risk, CFTC