CFTC Adopts SOFR First Recommendation for LIBOR Transition

The Market Risk Advisory Committee (MRAC) of the Commodity Futures Trading Commission (CFTC) announced that it has formally adopted a recommendation of a Secured Overnight Financing Rate (SOFR) First convention switch during its public meeting.

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SOFR First is a phased initiative for switching trading conventions from LIBOR to SOFR for U.S. Dollar linear interest rate swaps, cross currency swaps, non-linear derivatives and exchange traded derivatives.

In June, the Interest Rate Benchmark Reform Subcommittee of the MRACannounced its recommendation that interdealer brokers change USD linear swap trading conventions from USD LIBOR to SOFR, aiming to help market participants decrease reliance on USD LIBOR.

SOFR First has four phases with phase one, involving USD linear swaps, recommended to occur on July 26, 2021. Specifically, on July 26, 2021 and thereafter, interdealer brokers would replace trading of LIBOR linear swaps with trading of SOFR linear swaps.

The SOFR First market best practice recommends keeping interdealer brokers’ screens for LIBOR linear swaps available for informational purposes, but not trading activity, until October 22, 2021. After this date, these screens should be turned off altogether. The remaining SOFR First phases involve cross currency swaps, non-linear derivatives and exchange traded derivatives.