CFTC Issues No-Action Relief from Certain Swap Data Reporting Requirements in Connection with LIBOR Transition

Practical Law Legal Update w-040-0598 (Approx. 6 pages)

CFTC Issues No-Action Relief from Certain Swap Data Reporting Requirements in Connection with LIBOR Transition

by Practical Law Finance

Published on 13 Jul 2023 • USA (National/Federal)

The CFTC has issued No-Action Letter 23-09, providing relief to registered entities and their swap counterparties from certain swap data reporting obligations under CFTC Regulations Part 43 and Part 45 in connection with their transition to risk-free rates following the cessation or non-representativeness of certain impacted rates on June 30, 2023.

On June 29, 2023, the CFTC issued No-Action Letter 23-09 (No-Action 23-09), providing relief to registered entities and their swap counterparties (collectively, entities) from certain swap data reporting obligations under CFTC Regulations Part 43 and 45 in connection with their transition to risk-free-rates, under the ISDA® LIBOR fallback provisions, from the remaining tenors of overnight and one-, three-, six-, and 12-month tenors of USD LIBOR, the USD LIBOR ICE swap rates, and the Moscow Prime Offered Rate, or MosPrime (collectively, the impacted rates) following the cessation or non-representativeness of the impacted rates on June 30, 2023 (see Legal Update, FCA Announces Cessation of USD LIBOR Panel).

According to No-Action 23-09, in response to a request letter from the Alternate Reference Rates Committee (ARRC), the CFTC's Division of Market Oversight (DMO) and Division of Data (DOD) will not recommend the CFTC take enforcement action against entities:

For failure to timely report under CFTC Regulation 45.4 the change in the floating rate pursuant to the ISDA fallback provisions, specifically the ISDA Fallbacks (defined below) and the ISDA Protocols (defined below).
For failure to report under CFTC Regulation 43.3 the change in the floating rate pursuant to the ISDA Fallbacks (defined below) for an uncleared swap referencing any impacted rate.

As background, No-Action 23-09 sets out that the Financial Stability Board (FSB) called for the identification of alternative benchmarks to the interbank offered rates and transition plans to support the implementation of such alternatives with the non-representativeness of the impacted rates on June 30, 2023. To accomplish this, ISDA published:

ISDA Protocols, which are defined as:
ISDA Fallbacks, which are defined as:
- the 2006 ISDA definitions;
- the 2021 ISDA definitions (see Practice Notes, Introduction to 2021 ISDA Interest Rate Derivatives Definitions and Understanding the 2021 ISDA Interest Rate Derivatives Definitions: Key Differences Between the 2006 Definitions and the 2021 Definitions); and
- bilaterally incorporated provisions equivalent to the ISDA 2020 IBOR fallbacks protocol, the ISDA 2021 IBOR fallback protocol, the June 2022 benchmark module, and the November 2022 benchmark module.

Accordingly, following the non-representativeness of the impacted rates, these fallback provisions operate to modify the floating rate for certain transactions, an event for which Regulation 45.4 requires the reporting party to report continuation data (see Practice Note, US Derivatives Regulation: CFTC Swap Data Reporting and Recordkeeping Rules: Continuation Data Reporting Under Part 45). Regulation 43.3 requires various entities to report publicly reportable swap transactions, as defined in Regulation 43.2, to a registered swap data repository (SDR) (see Practice Note, US Derivatives Regulation: CFTC Swap Data Reporting and Recordkeeping Rules: Part 43: Real-Time Public Swap Data Reporting Rules).

According to No-Action 23-09, the UK Financial Conduct Authority (FCA) has confirmed that under the terms of the ISDA Fallbacks, the impacted rates will be automatically replaced by the following fallback rates:

USD LIBOR: Each transaction which references a relevant tenor of USD LIBOR and includes the ISDA Fallbacks will, from, and including, July 1, 2023, no longer use the LIBOR rate and will instead use the applicable fallback rate, specifically the term-adjusted Secured Overnight Financing Rate (SOFR) plus the spread adjustment fixed on March 5, 2021 (see Practice Note, ISDA Documents: IBOR Transition: LIBOR).
USD LIBOR ICE Swap Rate: Each transaction which references the USD LIBOR ICE swap rate and includes the ISDA Fallbacks will, from, and including, July 1, 2023, no longer use the USD LIBOR ICE swap rate and will instead use the applicable fallback rate, which is a specific fallback rate published by Ice Benchmark Administration (IBA), plus any applicable spread adjustment (Legal Update, FCA Issues Report Proposing USD Synthetic LIBOR Publication and Continued Synthetic GBP Publication and ISDA Publishes Guidance on Cessation of USD LIBOR ICE Swap Rate).
MosPrime: Each transaction that references a tenor of MosPrime and includes the ISDA Fallbacks will, from, and including, July 1, 2023, no longer use MosPrime and will instead use the applicable fallback rate: For example, the Russian Ruble Overnight Index Average Rate plus the applicable adjustment spread published on both MosPrime website and the Central Bank of the Russian Federation website.

For more information on the LIBOR cessation and derivatives, see LIBOR Replacement Toolkit.

CFTC Issues No-Action Relief from Certain Swap Data Reporting Requirements in Connection with LIBOR Transition | Practical Law