On October 15, 2021, the Interest Rate Benchmark Reform Subcommittee (subcommittee) of the CFTC’s Market Risk Advisory Committee (MRAC) issued Release Number 8449-21 announcing November 8, 2021 as the date for transitioning interdealer trading conventions from LIBOR to the Secured Overnight Financing Rate (SOFR) for US Dollar (USD) non-linear derivatives under Phase 3 of the MRAC’s SOFR First initiative.

For SOFR First purposes, USD non-linear derivatives include swaptions, caps, and floors. Other products like exotic options, Bermudan options, and constant maturity swaps are not included, and may continue trading in the interdealer market after November 8, 2021.

SOFR First, the market best practice as adopted by the MRAC at its July 13, 2021 meeting, includes four distinct phases to occur sequentially:

Under Phase 3 of SOFR First, beginning on November 8, 2021, interdealer brokers are encouraged to change USD non-linear derivatives trading conventions to SOFR and dealers are encouraged to specify physical settlement for SOFR-based swaptions until:

According to the subcommittee, while dealers may still execute USD LIBOR non-linear derivatives with clients after November 8, 2021, guidance from US prudential banking regulators states that dealers should cease entering into new contracts that use USD LIBOR as a reference rate as soon as practicable and in any event by December 31, 2021 (see Legal Update, Federal Reserve Provides Guidance on Review of Firms' LIBOR Transition Plans).

For more information on the CFTC's LIBOR transition actions in Phase 3 applicable to non-linear derivatives, see the MRAC subcommittee Responses to Frequently Asked Questions on SOFR First for Non-Linear Derivatives.

For additional information on fallbacks to LIBOR, see LIBOR Replacement Toolkit.