CFTC Issues Final Rule Modifying Swap Clearing Requirement to Remove LIBOR Elements | Practical Law

CFTC Issues Final Rule Modifying Swap Clearing Requirement to Remove LIBOR Elements | Practical Law

The CFTC has issued a final rule amending its interest rate swap clearing determination to remove elements tied to LIBOR and other interbank offered rates (IBORs) and replace them with clearing requirements that reference overnight risk-free reference rates.

CFTC Issues Final Rule Modifying Swap Clearing Requirement to Remove LIBOR Elements

Practical Law Legal Update w-036-6128 (Approx. 13 pages)

CFTC Issues Final Rule Modifying Swap Clearing Requirement to Remove LIBOR Elements

by Practical Law Finance
Published on 16 Aug 2022 • USA (National/Federal)
The CFTC has issued a final rule amending its interest rate swap clearing determination to remove elements tied to LIBOR and other interbank offered rates (IBORs) and replace them with clearing requirements that reference overnight risk-free reference rates.
On August 12, 2022, the CFTC issued a final rule amending its interest rate swap clearing requirement to remove elements tied to LIBOR and other interbank offered rates (IBORS) and replace them with clearing requirements that reference overnight, nearly risk-free reference rates (RFRs). The final rule amends CFTC Regulation 50.4(a), which sets out the CFTC's clearing requirement under Section 2(h)(2)(D) of the Commodity Exchange Act (CEA) (see Practice Note, US Derivatives Regulation: Swaps Clearing and Trade Execution: CFTC Swap Clearing Determinations).
Effective September 23, 2022, the final rule:
  • Removes the requirement to clear swaps referencing British pound (GBP) LIBOR, Swiss franc (CHF) LIBOR, Japanese yen (JPY) LIBOR, and euro (EUR) Euro Overnight Index Average (EONIA) in each of the fixed-to-floating swap, basis swap, forward rate agreement (FRA), and overnight index swap (OIS) classes, as applicable.
  • Adds a requirement to clear OIS referencing the CHF Swiss Average Rate Overnight (SARON) (with a stated termination date range of seven days to 30 years), the JPY Tokyo Overnight Average rate (TONA) (with a standard termination date range of seven days to 30 years), and the EUR Euro Short-Term Rate (€STR) (with a termination date range of seven days to 30 years).
  • Extends the stated termination date range for GBP Sterling Overnight Index Average (SONIA) OIS required to be cleared to include seven days to 50 years.
Effective October 31, 2022, the final rule adds a requirement to clear OIS referencing the US dollar (USD) Secured Overnight Financing Rate (SOFR) (with a termination date range of seven days to 50 years) and the Singapore dollar (SGD) Singapore Overnight Rate Average (SORA) (with a termination date range of seven days to 10 years).
Effective July 1, 2023, the final rule removes the requirement to clear interest rate swaps referencing USD LIBOR and the SGD Swap Offer Rate (SOR-VWAP) in each of the fixed-to-floating swap, basis swap, and FRA classes, as applicable.

Tables: Changes to Interest Rate Swap Clearing Requirement

The tables below show how CFTC Regulation 50.4(a) has been amended. The additions to the tables below are reflected in bold, and items that have been removed are indicated in strikethrough text.

Table 1a: Fixed-to-Floating Swap Class

Currency
Australian Dollar (AUD)
Canadian Dollar (CAD)
Euro (EUR)
Hong Kong Dollar (HKD)
Mexican Peso (MXN)
Norwegian Krone (NOK)
Floating Rate Indexes
BBSW
CDOR
EURIBOR
HIBOR
TIIE-BANXICO
NIBOR
Stated Termination Date Range
28 days to 30 years
28 days to 30 years
28 days to 50 years
28 days to 10 years
28 days to 21 years
28 days to 10 years
Optionality
No
No
No
No
No
No
Dual Currencies
No
No
No
No
No
No
Conditional Notional Amounts
No
No
No
No
No
No

Table 1b: Fixed-to-Floating Swap Class

Currency
Polish Zloty (PLN)
Singapore Dollar (SGD)
Swedish Krona (SEK)
Swiss Franc (CHF)
Sterling (GBP)
US Dollar (USD)
Yen (JPY)
Floating Rate Indexes
WIBOR
SOR-VWAP
STIBOR
LIBOR
LIBOR
LIBOR
LIBOR
Stated Termination Date Range
28 days to 10 years
28 days to 10 years
28 days to 15 years
28 days to 30 years
28 days to 50 years
28 days to 50 years
28 days to 30 years
Optionality
No
No
No
No
No
No
No
Dual Currencies
No
No
No
No
No
No
No
Conditional Notional Amounts
No
No
No
No
No
No
No

Table 2: Basis Swap Class

Currency
Australian Dollar (AUD)
Euro (EUR)
Sterling (GBP)
US Dollar (USD)
Yen (JPY)
Floating Rate Indexes
BBSW
EURIBOR
LIBOR
LIBOR
LIBOR
Stated Termination Date Range
28 days to 30 years
28 days to 50 years
28 days to 50 years
28 days to 50 years
28 days to 30 years
Optionality
No
No
No
No
No
Dual Currencies
No
No
No
No
No
Conditional Notional Amounts
No
No
No
No
No

Table 3: Forward Rate Agreement (FRA) Class

Currency
Euro (EUR)
Polish Zloty (PLN)
Norwegian Krone (NOK)
Swedish Krona (SEK)
Sterling (GBP)
US Dollar (USD)
Yen (JPY)
Floating Rate Indexes
EURIBOR
WIBOR
NIBOR
STIBOR
LIBOR
LIBOR
LIBOR
Stated Termination Date Range
3 days to 3 years
3 days to 2 years
3 days to 2 years
3 days to 3 years
3 days to 3 years
3 days to 3 years
3 days to 3 years
Optionality
No
No
No
No
No
No
No
Dual Currencies
No
No
No
No
No
No
No
Conditional Notional Amounts
No
No
No
No
No
No
No

Table 4: Overnight Index Swap (OIS) Class

Currency
Australian Dollar (AUD)
Canadian Dollar (CAD)
Euro (EUR)
Singapore Dollar (SGD)
Sterling (GBP)
Swiss Franc (CHF)
US Dollar (USD)
US Dollar (USD)
Yen (JPY)
Floating Rate Indexes
AONIA-OIS
CORRA-OIS
€STREONIA
SORA
SONIA
SARON
FedFunds
SOFR
TONA
Stated Termination Date Range
7 days to 2 years
7 days to 2 years
7 days to 3 years
7 days to 10 years
7 days to 503 years
7 days to 30 years
7 days to 3 years
7 days to 50 years
7 days to 30 years
Optionality
No
No
No
No
No
No
No
No
No
Dual Currencies
No
No
No
No
No
No
No
No
No
Conditional Notional Amounts
No
No
No
No
No
No
No
No
No
The tables below show how CFTC Regulation § 50.4(a) is further amended, effective July 1, 2023:

Table 1a: Fixed-to-Floating Swap Class

Currency
Australian Dollar (AUD)
Canadian Dollar (CAD)
Euro (EUR)
Hong Kong Dollar (HKD)
Mexican Peso (MXN)
Norwegian Krone (NOK)
Floating Rate Indexes
BBSW
CDOR
EURIBOR
HIBOR
TIIE-BANXICO
NIBOR
Stated Termination Date Range
28 days to 30 years
28 days to 30 years
28 days to 50 years
28 days to 10 years
28 days to 21 years
28 days to 10 years
Optionality
No
No
No
No
No
No
Dual Currencies
No
No
No
No
No
No
Conditional Notional Amounts
No
No
No
No
No
No

Table 1b: Fixed-to-Floating Swap Class

Currency
Polish Zloty (PLN)
Singapore Dollar (SGD)
Swedish Krona (SEK)
US Dollar (USD)
Floating Rate Indexes
WIBOR
SOR-VWAP
STIBOR
LIBOR
Stated Termination Date Range
28 days to 10 years
28 days to 10 years
28 days to 15 years
28 days to 50 years
Optionality
No
No
No
No
Dual Currencies
No
No
No
No
Conditional Notional Amounts
No
No
No
No

Table 2: Basis Swap Class

Currency
Australian Dollar (AUD)
Euro (EUR)
US Dollar (USD)
Floating Rate Indexes
BBSW
EURIBOR
LIBOR
Stated Termination Date Range
28 days to 30 years
28 days to 50 years
28 days to 50 years
Optionality
No
No
No
Dual Currencies
No
No
No
Conditional Notional Amounts
No
No
No

Table 3: Forward Rate Agreement Class

Currency
Euro (EUR)
Polish Zloty (PLN)
Norwegian Krone (NOK)
Swedish Krona (SEK)
US Dollar (USD)
Floating Rate Indexes
EURIBOR
WIBOR
NIBOR
STIBOR
LIBOR
Stated Termination Date Range
3 days to 3 years
3 days to 2 years
3 days to 2 years
3 days to 3 years
3 days to 3 years
Optionality
No
No
No
No
No
Dual Currencies
No
No
No
No
No
Conditional Notional Amounts
No
No
No
No
No

Table 4: Overnight Index Swap Class

Currency
Australian Dollar (AUD)
Canadian Dollar (CAD)
Euro (EUR)
Singapore Dollar (SGD)
Sterling (GBP)
Swiss Franc (CHF)
US Dollar (USD)
US Dollar (USD)
Yen (JPY)
Floating Rate Indexes
AONIA-OIS
CORRA-OIS
€STR
SORA
SONIA
SARON
FedFunds
SOFR
TONA
Stated Termination Date Range
7 days to 2 years
7 days to 2 years
7 days to 3 years
7 days to 10 years
7 days to 50 years
7 days to 30 years
7 days to 3 years
7 days to 50 years
7 days to 30 years
Optionality
No
No
No
No
No
No
No
No
No
Dual Currencies
No
No
No
No
No
No
No
No
No
Conditional Notional Amounts
No
No
No
No
No
No
No
No
No