The Alternative Reference Rates Committee sent a letter to CFTC Chairman J. Christopher Giancarlo reiterating previous requests for relief and also requesting an exception from initial margin requirements for certain benchmark reform-related transactions.
The ARRC letter provides an update on developments relating to a request for regulatory relief was submitted to the CFTC in July 2018. Having examined a number of models for converting existing IBOR-referencing derivatives to reference new benchmarks, the ARRC found that "it is clear that many of the conversions will not be effectuated on a simple one-for--one basis, and will require amendments to a variety of contract terms," and that imposing rules-based conditions would be "highly complex" and make a voluntary transition difficult. In light of this, ARRC requested that any relief provided by U.S. regulators be broad enough to allow for flexibility in use of different conversion approaches while preserving "legacy" status for purpose of various swap regulatory matters.
In addition, following on an invitation from Mr. Giancarlo for requests for "regulatory tools to incentivize transition to SOFR-based benchmarks," the ARRC requested that, in order to promote liquidity for new risk-free rates (such as SOFR), regulators provide an exception from initial margin requirements for new RFR-linked transactions.
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