ARRC Endorses CFTC MRAC Recommendation of September 21, 2021 LIBOR-to-RFR Transition Date for Interdealer Cross-Currency Basis Swaps | Practical Law

ARRC Endorses CFTC MRAC Recommendation of September 21, 2021 LIBOR-to-RFR Transition Date for Interdealer Cross-Currency Basis Swaps | Practical Law

The Alternative Reference Rates Committee (ARRC) endorsed Phase 2 of the CFTC's Market Risk Advisory Committee (MRAC) SOFR First initiative, under which interdealer cross-currency basis swaps in certain major currencies are to transition from LIBOR to their respective risk-free rates beginning September 21, 2021.

ARRC Endorses CFTC MRAC Recommendation of September 21, 2021 LIBOR-to-RFR Transition Date for Interdealer Cross-Currency Basis Swaps

by Practical Law Finance
Published on 27 Jul 2021 • USA (National/Federal)
The Alternative Reference Rates Committee (ARRC) endorsed Phase 2 of the CFTC's Market Risk Advisory Committee (MRAC) SOFR First initiative, under which interdealer cross-currency basis swaps in certain major currencies are to transition from LIBOR to their respective risk-free rates beginning September 21, 2021.
On July 21, 2021, the Alternative Reference Rates Committee (ARRC) endorsed the second phase (Phase 2) of the MRAC SOFR First initiative, which covers interdealer trading conventions for cross-currency basis swaps. Under Phase 2, the MRAC recommends that cross-currency basis swaps between any of the following currencies move from LIBOR to each currency’s risk-free rate (RFR) as of September 21, 2021: US dollar (USD), Japanese yen (JPY), British pound sterling (GBP), and Swiss franc (CHF).
As ARRC notes, following the September 21, 2021 Phase 2 transition from LIBOR, it is expected that all interdealer trading in cross-currency basis swaps between any of USD, JPY, GBP, or CHF will be based on these Phase 2 RFR conventions and will reference SOFR, the Tokyo Overnight Average rate (TONA), the Sterling Overnight Index Average rate (SONIA), and the Swiss Average Rate Overnight (SARON), respectively, rather than LIBOR.
SOFR First has four phases:
  • Interdealer interest rate swaps (Phase 1).
  • Interdealer cross-currency swaps (Phase 2 – also referred to by Bank of England as "RFR First").
  • Interdealer non-linear derivatives (Phase 3).
  • Exchange traded derivatives generally (Phase 4).
The CFTC's Interest Rate Benchmark Reform Subcommittee has notified MRAC that it expects to complete subsequent SOFR First phases before the end of 2021.
For more information on SOFR First, see Legal Update, Updated: CFTC MRAC Recommends July 26, 2021 LIBOR-to-SOFR Transition Date for Interdealer Interest Rate Swap Market.
For additional information on fallbacks to LIBOR, see Practice Note, Practice Point: Understanding the ISDA 2021 IBOR Fallbacks Supplement and Protocol and LIBOR Replacement Toolkit.