The US regulator, the Commodity Futures Trading Commission, has recently provided market participants further relief when it comes to transactions from swaps referencing LIBOR, as well as other offered interbank rates.
The staff of the CFTC has opted to issue out two no-action letters that provide additional relief. This relief is for swap transactions that transition from LIBOR to various alternative benchmarks. This applies to specified derivatives clearing organizations (DCOs), as well as various other market participants.
Giving Some Leeway
This announcement came as a result of LIBOR, riddled with scandal, being set to retire by the end of 2021. It will leave a legacy of transitioning from the most important benchmark of the world, to a tarnished name after a multiyear rigging scandal was discovered, having gone on since the financial crisis of 2008.
The CFTC had handed additional relief to various swaps dealers back in September of this year, as these dealers move from LIBOR and other interbank reference rates to various alternative benchmarks. The relief itself covers multiple requirements applicable to swap dealers, as well as mandatory clearing and trade execution requirements.
The Specific Relief
As for the letters, in particular, Letter No. 19-26 provides relief for specific swaps executed should they be part of the LCH Limited Discounting transition auction, occurring on the 17th of October, 2020. Alongside this, Letter No. 20-33 allows certain swaps executed relief, standing part of of the discounting transition auction of CME Inc, which will occur on the 19th of October, 2020
The CFTC stated that the relief sent out today will help smooth the transitioning away from Interbank offered Rates, or IBORs. In particular, this is in regard to older legacy swaps, sitting on the books of clients and their dealers. This is particularly applicable for end-users across the globe.
The agency went further, explaining that this relief allows for a delay when it comes to reporting swap transactions and price data, as stipulated under the CFTC Regulation 43.3. This will be applied to specific swaps that can potentially be executed as part of the discounting transition auctions soon to occur. These auctions, as the CFTC stipulated, will be held either by CME Inc or LCH Limited, and the relief allows these firms some leeway regarding the reporting of pricing and swap transaction data for these relevant swaps, up until the 19th of November, 2020.
Price Rigging On A Global Scale
In the US, a dozen bankers have been convicted of rigging the LIBOR rate within the US, as the DoJ brought out a series of persecutions, alongside other regulators. This, in turn, spurred an overhaul in the rules of rate-setting, as well.