Highlighting recent developments concerning the transition away from LIBOR, CFTC Commissioner Rostin Behnam emphasized the importance of "operational readiness" and urged firms to put in place fallbacks.
In a statement at the ISDA / SIFMA AMG Benchmark Strategies Forum, Mr. Behnam noted the progress made in the United States in the transition away from LIBOR. He cited:
- the Alternative Reference Rates Committee ("ARRC") developing the "Paced Transition Plan," which sets forth steps for an efficient shift to the Secured Overnight Financing Rate ("SOFR");
- the ARRC providing recommended language for USD LIBOR fallback contract language for various cash products;
- CFTC staff providing no-action relief relating to benchmark transition;
- U.S. prudential regulators reopening the comment period for a proposal to amend rules governing margin requirements for uncleared swaps and security-based swaps (including amendments relating to benchmark transition); and
- the Federal Housing Finance Agency coordinating efforts with Fannie Mae and Freddie Mac to implement a model for a SOFR-based adjustable mortgage rate ("ARM").
Mr. Behnam also addressed a preference by some market participants - that regulators should push change through rulemaking - stating that the U.S. approach is to "facilitate" rather than "requir[e] compulsory industry standard setting or change through regulation." Mr. Behnam urged market participants to take part in consultative efforts by the ARRC, ISDA and the CFTC Market Risk Advisory Committee.
In addition, Mr. Behnam expressed support for ISDA's new consultation on the implementation of pre-cessation fallbacks. Mr. Behnam applauded ISDA for reconsidering a pre-cessation trigger and the use of a single protocol, stating this approach will (i) account for the associated risks of a non-representative LIBOR and (ii) ensure a "level playing field" by preventing price mismatches among triggered and non-triggered contracts.
Commentary Nihal Patel
Mr. Behnam has taken a lead role at the CFTC when it comes to benchmark reform. This speech is a useful review of recent market developments and notable for Mr. Behnam's express support for a public-private approach to addressing benchmark reform.
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