SEC Statement Highlights Risks to Consider During LIBOR Transition
SEC published a statement encouraging market participants to proactively manage their transition away from the London Inter Bank Offer Rate (LIBOR). The statement outlines several potential areas that may warrant increased attention during the transition. It is expected that parties reporting information used to set LIBOR will stop doing so after 2021.
As LIBOR is used extensively in the U.S. and globally as a benchmark rate to set interest rates for various commercial and financial contracts, the discontinuation of LIBOR could have a significant impact on financial markets and may present a material risk for market participants, including public companies, investment advisers, investment companies, and broker-dealers. These risks will be exacerbated if the work necessary to effect an orderly transition to an alternative reference rate is not completed in a timely manner. The SEC Chair Jay Clayton said, "For many market participants, waiting until all open questions have been answered to begin this important work likely could prove to be too late to accomplish the challenging task required."
The statement encourages market participants to identify existing contracts that extend past 2021 to determine their exposure to LIBOR and to consider whether contracts entered into in the future should reference an alternative rate to LIBOR or include effective fallback language. The statement also contains specific guidance for how registrants might respond to risks associated with the discontinuation of LIBOR. SEC will continue to actively monitor the extent to which market participants are identifying and addressing risks associated with the expected discontinuation of LIBOR. The SEC staff welcomes discussion on the transition and welcomes engagement from market participants on these important matters.
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Keywords: Americas, US, Banking, Securities, LIBOR, LIBOR Alternatives, Interest Rate Benchmarks, SEC
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