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CFTC Further Extends and Provides New No-Action Relief Relating to LIBOR Transition for Uncleared Swaps
Practical Law Legal Update w-033-9338 (Approx. 5 pages)
CFTC Further Extends and Provides New No-Action Relief Relating to LIBOR Transition for Uncleared Swaps
by Practical Law Finance
| Published on 30 Dec 2021 • USA (National/Federal) |
The CFTC extended previously granted relief to uncleared swaps market participants, and provided new relief relating to data reporting for uncleared swaps, to facilitate the transition from LIBOR and other IBORs to alternative risk-free benchmarks.
On December 20, 2021, the CFTC issued three no-action letters extending previously granted relief relating to the transition from LIBOR and other interbank offered rates (the IBORs) to alternative benchmarks, including risk-free rates (RFRs), pursuant to requests from the Alternative Reference Rate Committee (ARRC) (see Further Extensions of LIBOR Relief).
On December 22, 2021, the CFTC issued no-action relief from certain data reporting requirements under CFTC Regulations Parts 45 and 43, also in connection with the LIBOR transition (see LIBOR Transition Data Reporting Relief).
Further Extensions of LIBOR Relief
- Limited relief from clearing requirement. CFTC No-Action Letter 21-28 (Letter 21-28), which supersedes CFTC No-Action Letter 20-25 (Letter 20-25) in its entirety (see Legal Update: CFTC Provides Additional Swap LIBOR-Replacement Relief), extending the relief granted under Letter 20-25 until June 30, 2023. Like Letter 20-25, under Letter 21-28, certain amendments to a legacy interest rate swap (IRS) or legacy swaption made solely for LIBOR/benchmark-replacement purposes do not cause such legacy IRS or legacy swaption to lose its legacy status and become subject to the CFTC swap clearing requirement (see Practice Note: US Derivatives Regulation: Swap Clearing and Trade Execution: Swap Clearing Under Title VII). Letter 21-28 applies only to uncleared IRS that were:
- executed prior to the applicable clearing requirement compliance date for that swap; and
- subsequently amended solely as part of an industry-wide initiative to amend swaps that reference IBORS to reference alternative RFRs.
The relief was set to expire on December 31, 2021 under Letter 20-25. - Limited relief from trade-execution requirement. CFTC No-Action Letter 21-27 (Letter 21-27), which supersedes CFTC No-Action Letter 20-24 (Letter 20-24) in its entirety (see Legal Update: CFTC Provides Additional Swap LIBOR-Replacement Relief), extending the relief granted under Letter 20-24 until June 30, 2023. Under Letter 21-27, when a swap that references one of the 2023 USD LIBOR settings is modified or created by an IBOR transition mechanism, it does not become subject to the trade execution requirement under Section 2(h)(8) (see Practice Note, US Derivatives Regulation: Swap Clearing and Trade Execution). An IBOR transition mechanism includes the execution of new RFR swaps for purposes of IBOR fallback replacement, as well as fallback amendments and replacement rate amendments. The relief was set to expire on December 31, 2021 under Letter 20-24.
- Limited relief from swap dealer requirements. CFTC No-Action Letter 21-26 (Letter 21-26), which supersedes CFTC No-Action Letter 20-23 (Letter 20-23) in its entirety (see Legal Update, CFTC Provides Additional Swap LIBOR-Replacement Relief), extending the relief granted under Letter 20-23 until June 30, 2023. Letter 20-23 was intended to permit parties to legacy swaps to amend these swaps for LIBOR/IBOR replacement without triggering a number of CFTC requirements applicable to swap dealers (SD), such as:
- SD registration threshold requirements (see Practice Note, US Derivatives Regulation: Swap Dealer and SBSD Registration Thresholds);
- SD uncleared swap margin requirements (see Practice Note, US Derivatives Regulation: Margin Collection and Exchange Requirements for Uncleared Swaps);
- SD business conduct requirements (see Practice Note, US Derivatives Regulation: External Business Conduct (EBC) Rules for Swap Dealers and MSPs);
- SD confirmation, documentation, and reconciliation requirements (see Practice Note, US Derivatives Regulation: Internal Business Conduct (IBC) Rules for Swap Dealers and MSPs); and
- Regulatory requirements applicable to select end-users.
The relief was set to expire on December 31, 2021 under Letter 20-23.
LIBOR Transition Data Reporting Relief
On December 22, 2021, the CFTC issued No-Action Letter 21-30, (Letter 21-30), under which:
- The CFTC's Division of Data (DOD) will not recommend the CFTC take enforcement action against an entity for failure to timely report under CFTC Regulation 45.4 the change in the floating rate pursuant to the fallback provisions (including the spread adjustment and conforming changes described above) of the 2006 ISDA® Definitions, the 2021 ISDA Definitions, the ISDA 2020 IBOR Fallbacks Protocol (ISDA protocol), or bilaterally incorporated provisions equivalent to the ISDA protocol are (collectively, LIBOR Fallbacks) for an uncleared swap referencing any tenor of Swiss Franc, Euro, British Pound Sterling, and Japanese Yen LIBOR, provided:
- the entity uses its best efforts to report the change by the applicable deadline in Part 45; and
- in no case reports the required information under regulation 45.4 later than 5 business days from, but excluding December 31, 2021.
- DOD will not recommend the CFTC tale enforcement action against an entity for failure to report under CFTC Regulation 43.3 a change in the floating rate for a swap modified after execution to incorporate the LIBOR fallbacks to transition from referencing any tenor of Swiss Franc, Euro, British Pound Sterling, and Japanese Yen LIBOR to referencing a pre-defined corresponding RFR plus the relevant spread adjustment as published by Bloomberg.
For details on CFTC data reporting rules for uncleared swaps under CFTC Regulations Parts 45 and 43, see Practice Note, US Derivatives Regulation: CFTC Swap Data Reporting and Recordkeeping Rules.