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Leaving LIBOR:
A Landmark Transition

The move away from the London Interbank Offered Rate (LIBOR) is a global phenomenon that has the financial industry mobilizing ahead of a looming deadline.

Updated: September 15, 2022

LIBOR cessation or non-representativeness
at end 2021

In line with announcements from the Financial Conduct Authority (FCA), publication of 24 of the 35 LIBOR settings ceased from 1 January 2022.

  • Five U.S. dollar LIBOR settings (O/N, 1M, 3M, 6M &12M) will continue to be calculated using panel bank submissions until mid-2023, although its use for new business will be restricted from end-2021, with limited exceptions.

  • Six sterling and yen LIBOR settings will continue for the duration of 2022 on a ‘synthetic’ basis.

  • Synthetic JPY LIBOR will cease at the end of 2022. Availability of synthetic GBP LIBOR is not guaranteed beyond end-2022.

    • A public consultation was published by the FCA on June 30, 2022 on winding down synthetic sterling LIBOR and U.S. dollar LIBOR

USD LIBOR dealing restrictions in 2022

  • The Federal Reserve Board, Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency has previously issued supervisory guidance encouraging banks to 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. USD Dealing will be permitted in certain use cases as outlined in the SR 20-27 Interagency Statement on LIBOR Transition.

    • transactions executed for purposes of required participation in a central counterparty auction procedure in the case of a member default, including transactions to hedge the resulting USD LIBOR exposure;
    • market making in support of client activity related to USD LIBOR transactions executed before January 1, 2022;
    • transactions that reduce or hedge the bank's or any client of the bank's USD LIBOR exposure on contracts entered into before January 1, 2022; and
    • novations of USD LIBOR transactions executed before January 1, 2022.

  • On October 20, 2021 - Fed, OCC, FDIC, CFPB, NCUA, state bank and credit union regulators issued a joint statement on managing the LIBOR transition. The statement includes: Clarification regarding new LIBOR contracts: A new contract would include an agreement that (i) creates additional LIBOR exposure for a supervised institution or (ii) extends the term of an existing LIBOR contract. A draw on an existing agreement that is legally enforceable (e.g., a committed credit facility) would not be viewed as a new contract. For more information on considerations when assessing appropriateness of alternative reference rates, expectations for fallback language and additional considerations, please visit the statement.

Industry developments

  • On September 8, 2022 - ISDA guidance on the IBOR fallback rates was published by Bloomberg and the interaction among RFR publications, IBOR fallback publications and the ISDA Definitions has been published on the ISDA Website

  • On September 8 2022 – ARRC posted their September 8, 2022 meeting readout.

  • On August 31, 2022 - IBA published a consultation on the potential cessation of the publication of the USD LIBOR ICE Swap Rate for all tenors immediately after publication on June 30, 2023. Due date October 7, 2022

  • On August 24, 2022- The Bank of England published a Policy Statement on changes to the UK Derivatives Clearing Obligation further to interest rates benchmark reform

    • The Bank’s final policy maintains the proposal in the June CP to add SOFR OIS contracts with an original maturity between 7 days and 50 years to the derivatives clearing obligation (DCO) from October 31, 2022 and to subsequently remove contracts referencing USD Libor.
    • In the June CP, the bank proposed to align the date on which USD Libor contracts will be removed from the DCO with CCPs’ contractual conversions of those contracts. Consistent with that proposal, contracts referencing USD Libor will be removed from the DCO on 24 April 2023 (the first planned date of any CCP conversion)

  • In August 2022 - CME confirmed the approach for converting USD LIBOR cleared swaps.

    • Basis swap splitting exercise: Friday, March 24, 2023
    • Primary conversion date: Friday, April 21, 2023
    • Secondary Conversion date: Monday, July 3, 2023

  • On August 16, 2022 - The FCA released a statement encouraging market participants to continue transition of LIBOR-linked bonds.

  • On August 12, 2022 - The CFTC Issued its Final Rule Modifying the Swap Clearing Requirement in support of the transition from LIBOR and Other Interbank Offered Rates to Alternative Reference Rates.

    • The final rule removes the requirement to clear interest rate swaps referencing the London Interbank Offered Rate (LIBOR) and certain other interbank offered rates and replaces them with requirements to clear interest rate swaps referencing overnight, nearly risk-free reference rates.

  • On July 19, 2022 - Federal Reserve Board (FRB) issued a notice of proposed rulemaking implementing the Adjustable Interest Rate (LIBOR) Act enacted by Congress earlier this year

    • The proposal would replace references to USD LIBOR in certain contracts with the applicable Board-selected replacement rate after June 30, 2023. The contracts include those governed by US state or federal law that do not mature before USD LIBOR ends and that lack adequate fallback provisions.
    • The proposal identifies separate Board-selected replacement rates for derivatives transactions, contracts where a government-sponsored enterprise is a party, consumer contracts and all other affected contracts. As required by the law, each proposed replacement rate is based on the Secured Overnight Financing Rate (SOFR).
    • Comments are due August 29, 2022.

  • On July 15, 2022 – CME Group announced an extension to fee waivers for SOFR options trading and liquidity boosting incentives for participating market makers through the entire month of August, pending regulatory review.

  • On July 14, 2022 – ARRC posted their July 13, 2022 meeting readout.

  • On July 11, 2022 – ARRC Last Call on LIBOR event took place. Final Steps to Transition co-hosted by the Federal Reserve Bank of New York and Financial Conduct Authority was noted as highlighting 3 key points:

    • the significant progress made in the shift away from LIBOR to SOFR,
    • the need for remediating legacy LIBOR contracts well ahead of U.S. dollar (USD) LIBOR’s cessation to help mitigate operational risks, and
    • the criticality of ensuring only robust rates like SOFR are utilized in the future to avoid repeating the decade-long LIBOR transition exercise.

  • On July 11, 2022 ARRC welcomed the statement by Refinitiv that it intends to begin publishing ARRC-recommended fallback rates based on the CME Term SOFR rates in September 2022.

  • On July 11, 2022 – ARRC released the LIBOR Legacy Playbook a guide describing the existing broad frameworks to support the transition of legacy LIBOR cash products.

    • While not intended to provide legal advice, the guide aims to provide tools and resources, including a compilation of best practice recommendations and reference materials, to assist market participants in ensuring that the transition from LIBOR is operationally successful.

  • On July 7, 2022 – LCH published the outcome to the Consultation on Conversion of Outstanding USD LIBOR® SwapClear Contracts. Respondents were unanimously in favour of generating Market-Standard SOFR OIS as conversion process outputs, and to do so in a process run shortly before USD LIBOR cessation. LCH's approach for converting USD LIBOR cleared swaps:

    • Tranche 1: USD LIBOR / FEDFUNDS Basis Swaps, USD VNS and USD ZCS, conversion would apply to SwapClear Contracts outstanding at COB on Friday 21st April 2023 and be conducted over that weekend.
    • Tranche 2: all other USD LIBOR, conversion would apply to SwapClear contracts outstanding at COB on Friday 19th May 2023 and be conducted over that weekend.
    • Information on LCH’s approach can be found here.
    • Rates Reform: USD LIBOR Fallback and Conversion Fees can be found here.

  • On June 30, 2022 – the FCA published a consultation on winding down synthetic sterling LIBOR and US dollar LIBOR.

    • The FCA are consulting on:
      • Whether the 1- and 6-month sterling LIBOR settings can cease in an orderly fashion at end-March 2023, in order to provide adequate notice for the market of these settings ending.
      • When the 3-month sterling LIBOR setting can be ceased in an orderly fashion, given the FCA think that most asset classes should have had sufficient time to transition, or otherwise prepare for cessation, by the end of this year.
      • Remaining exposures to U.S. dollar LIBOR. The FCA are seeking information on the size and nature of these exposures and testing assumptions regarding when and how they can be transitioned away from LIBOR. The FCA also want to establish whether there are any insurmountable barriers to transitioning any exposures.
      • Responses to this consultation will inform the review of FCA decisions to compel continued publication of the 1-, 3- and 6-month sterling LIBOR settings later this year, and in due course FCA assessment of whether the FCA should require continued publication of U.S. dollar LIBOR on a synthetic basis when the U.S. LIBOR panel ends on June 30, 2023.
    • The consultation closes on August 24, 2022.

  • On June 15, 2022 – ISDA published USD Swap Rate Fallbacks – Module to the ISDA 2021 Fallbacks Protocol and Bilateral Amendment Agreement advising that the following is effective from this date:

    • the Bilateral Amendment Agreement for adoption of USD LIBOR ICE Swap Rate Fallback Provisions in Confirmations for legacy transactions incorporating either the 2000 ISDA Definitions, the 2006 ISDA Definitions or the 2021 ISDA Interest Rate Derivatives Definitions or Confirmations referencing the ‘USD LIBOR ICE Swap Rate’;
    • the Module to the ISDA 2021 Fallbacks Protocol covering the USD LIBOR ICE Swap Rate fallbacks;
    • the table showing the differences between the June 2022 USD ISR Fallbacks Module, the November 2021 Amendment Agreement for USD ISR Fallbacks and the Updated Amendment Agreement for USD ISR Fallbacks;
    • the June 2022 Benchmarks Module FAQs; and
    • the updated ICE Swap Rate FAQs.

  • On June 15, 2022 – CME published a USD LIBOR conversion proposal for cleared swaps

  • On June 9, 2022 - Bank of England published its consultation paper on the Derivatives clearing obligation – modifications to reflect USD interest rate benchmark reform: Amendments to BTS 2015/2205, , and sets out the proposal to modify the scope of contracts which are subject to the clearing obligation, by adding OIS that reference SOFR and removing contracts referencing USD LIBOR.

  • On June 8, 2022 - ARRC Releases Recommendations for Contracts Linked to the USD LIBOR ICE Swap Rate

    • The recommendations recognize that these contracts are not covered by federal LIBOR legislation and that counterparties may need to take proactive steps to address the end of the USD LIBOR ISR.

  • On May 19, 2022 - The Alternative Reference Rates Committee (ARRC) announced its endorsement of the CME Group’s forward-looking 12-month Secured Overnight Financing Rate (SOFR) term rate for certain uses in line with its Best Practice Recommendations Related to Scope of Use.

  • On May 9, 2022 – CFTC issued a proposed rule to modify the CFTC's interest rate swap clearing requirement to remove certain clearing requirements tied LIBOR and other IBORs and replace them with similar clearing requirements for swaps referencing overnight, nearly risk-free reference rates.

    • The NPRM proposes to update the swaps required to be submitted for clearing to a derivatives clearing organization (DCO) or an exempt DCO under part 50 of the CFTC’s regulations and update the table of compliance dates for the CFTC’s swap clearing requirement to reflect the new set of swaps required to be cleared.

  • On May 5, 2022 – ARRC Welcomed CME Group's SOFR First for Options Announcement and encourages widespread support for the initiative.

    • SOFR First for Options initiative is set for June and July of this year, it will be taking additional steps to build on the impressive growth already seen in SOFR futures to help significantly increase SOFR options trading based on a deep and liquid marketplace.

  • On May 4, 2022 – CME Group launched 'SOFR First for Options' a market-wide initiative geared toward accelerating adoption and liquidity in SOFR options during the months of June and July.

    • CME will provide a market-wide fee waiver for SOFR options in June and July, accompanied by introducing additional market making incentives during this period to help enhance liquidity in all venues. CME Group will also sunset the listing of long-dated quarterly Mid Curve and Eurodollar options which, upon expiration, will be replaced by SOFR options.

  • On April 29, 2022 - LCH released their consultation for the USD Libor conversion due date for feedback is May 27th, 2022. Key points to highlight are:

    • Conversion event proposed to take place over two weekend, split by product type
      • Tranche 1: USD LIBOR / FEDFUNDS Basis Swaps, USD VNS and USD ZCS
      • Tranche 2: All other products
    • Proposed conversion dates
      • Tranche 1: weekend of April 22-23 of 2023 (contingency date weekend of May 6-7)
      • Tranche 2: weekend of May 20-21 of 2023 (contingency date weekend of Jun 3-4)
    • Different treatment proposed for USD LIBOR / USD LIBOR & USD LIBOR / SOFR Basis Swaps
      • No plans to impose a service-wide mandatory basis swap splitting event
      • LCH plans to introduce unilateral basis swap splitting functionality in late 2022. There would be no charges associated with use of this functionality.
      • Planned enhancements to LCH’s blended rate compression capability, specifically targeting the contracts that arise from basis swap splitting

  • On March 15, 2022 – ARRC welcomed the Passage of Federal LIBOR Transition Legislation in Omnibus Spending Package.

  • On March 15, 2022 – President Biden signed into law the Consolidated Appropriations Act, 2022, which includes federal legislation that provided a solution for legacy financial contracts tied to LIBOR.

    • The legislation provides clarity, prevents disruption and creates safe harbors for the transition from USD LIBOR to SOFR for tough legacy contracts at USD LIBOR cessation on June 30, 2023.
      • Tough Legacy: Existing LIBOR referencing contracts that are unable, before June 30, 2023, to either convert to a non-LIBOR rate or be amended to add fallbacks.
    • Application of the legislation does not depend upon what type of contract it is (e.g., a security, loan, mortgage, swap, etc.), but rather depends upon whether and how provisions in the contract deal with the replacement of LIBOR (known as “fallback provisions”).
    • The legislation requires Federal Reserve Board to issue regulations specifying SOFR based benchmark replacement rates no later than 180 days after the legislation becomes effective.

  • On February 10, 2022 - ICE Benchmark Administration launches Beta ICE Term SOFR Reference Rates

    • The Beta ICE Term SOFR Reference Rates (“ICE Term SOFR”) are designed to measure expected (i.e. forward-looking) SOFR rates over one, three, six and 12-month tenor periods. The rates are based on a Waterfall Methodology, which uses eligible prices and volumes for specified SOFR-linked interest rate derivative products as input data.

  • On February 9, 2022 – Bank of England, Financial Conduct Authority (FCA) and the Working Group on Sterling Risk-Free Reference Rates released a joint statement on Finalizing LIBOR transition– achievements in sterling markets and what remains to be done.

  • On February 2, 2022 - IHS Markit Officially Launches CRITR and CRITS Benchmarks for the following tenors: overnight, 1-month, 3-month, 6-month, and 12-months.

  • On February 1, 2022 – CME announced that they will migrate all Eurodollar options and futures open interest to corresponding SOFR positions for Monday July 3rd, 2023.

  • On December 22, 2021 - CFTC's Division of Clearing and Risk (DCR), Division of Market Oversight (DMO), and Market Participants Division (MPD) each released a CFTC Staff Revised no-action letter extending or modifying previously granted relief in connection with the LIBOR transition.

  • On December 22, 2021 - The European Commission (EC) announced it would be issuing implementing acts to designate replacement rates for certain British Pound (GBP) LIBOR (here) and certain Japanese Yen (JPY) LIBOR (here) in Q1 2022.

    • This comes in response to the UK Financial Conduct Authority (FCA) announcement to allow all contracts (except cleared derivatives) to use synthetic versions GBP and JPY LIBOR until the end of 2022. It also takes into consideration the demands expressed by the Euro Risk Free Rate Working Group (EUR RFR WG) asking to designate replacement rates for GBP LIBOR and JPY LIBOR under the EU rulebook to ensure legal certainty beyond 2022 and consistency with the EU Benchmarks Regulation (BMR).

  • On December 16, 2021 - Interest Rate Benchmark Reform Subcommittee of the Market Risk Advisory Committee (MRAC) published a user's guide to the transition of newly-executed exchange-traded derivatives from LIBOR to SOFR under the SOFR First Initiative. Publication of this user guide was the fourth and final phase of SOFR First initiative and outlined best practices for market participants to consider in transitioning new exchange-traded derivatives activity to SOFR activity in the near term. The user guide encouraged all market participants to ensure operational capability to transact in SOFR exchange-traded derivatives as soon as possible, and stated that it would be a best practice for all market participants to replace use of LIBOR with SOFR for new contracts, including exchange-traded derivatives, after end-2021.

  • On December 16, 2021 - CARR published a White Paper on the recommended future of CDOR where it recommended that the administrator of CDOR, Refinitiv Benchmark Services (UK) Limited (RBSL), cease publication of all of CDOR’s remaining tenors after the end of June 2024. However, the decision to cease CDOR ultimately lies solely with RBSL and CARR’s recommendation does not constitute a public statement or publication of information that CDOR has ceased or will cease permanently or indefinitely.

  • On December 15, 2021 - The Critical Benchmarks (References and Administrators’ Liability) Bill [HL] 2021-22 received Royal Assent. No amendments were made to the Bill in either House, and it passed all stages without division.

  • On December 2, 2021 - The Interest Rate Benchmark Reform Subcommittee, a subcommittee of the Commodity Futures Trading Commission’s Market Risk Advisory Committee (MRAC), announced that it selected December 13th to switch interdealer trading conventions from LIBOR to the Secured Overnight Financing Rate (SOFR) for the U.S. dollar (USD) leg of newly-executed cross-currency derivatives under the MRAC’s SOFR First initiative.

  • On November 30, 2021 - The Alternative Reference Rates Committee (ARRC) welcomed Refinitiv’s announcement that its USD IBOR Institutional Cash Fallbacks are now available for immediate use as production benchmarks and that, pending final approvals, its USD IBOR Consumer Cash Fallbacks for 1-week and 2-month settings would launch on January 3, 2022.

  • On November 16, 2021 - The FCA confirmed it will allow the temporary use of ‘synthetic’ sterling and yen LIBOR rates in all legacy LIBOR contracts, other than cleared derivatives, that have not been changed at or ahead of end-31 December 2021. FCA further published the following:

  • On October 22, 2021 - the European Commission nominated the replacement rates for CHF LIBOR and EONIA to be SARON and €STR respectively (with spreads applied). The statutory replacement will be automatic as of January 1st, 2022 and contracts can continue without the need for intervention from contract parties. However, parties can still choose to renegotiate contracts bilaterally. Where parties choose to do so, the statutory replacement does not apply.

  • On September 29, 2021 - FCA released a statement regarding the use of Synthetic LIBOR. FCA will require the benchmark administrator to publish 1, 3, and 6 month GPB and Japanese yen LIBOR settings under a ‘synthetic’ methodology in 2022 to be used in some legacy contracts. It is important to note that Synthetic LIBOR will not be used in new business. Along with the statement, FCA also published a Consultation Paper regarding FCA’s proposed decision on which legacy contracts can use synthetic LIBOR rates. FCA proposes:

    • “to permit legacy use of these 6 LIBOR settings in all contracts except cleared derivatives (whether directly or indirectly cleared)” under Article 23C of UK BMR;
    • “to prohibit new use of the 5 remaining U.S. dollar LIBOR settings from end-2021” except for permitted use cases (e.g. risk management of existing positions) under Article 21A of UK BMR.
    • Proposals apply to entities and contracts in scope of UK BMR only.

  • On September 29, 2021 - Bank of Japan (BoJ) released a Public Consultation on the Treatment of Tough Legacy Contracts in Japan. BoJ proposed the use of synthetic LIBOR in tough legacy contracts (loans and bonds only) where:

    • Parties are unable to agree insertion of fallbacks or active conversion by end 2021 and;
    • Lender / Issuer has endeavored to amend the contract via good faith discussions or consent mechanisms
    • Proposals apply to existing contracts for loans and bonds that reference JPY LIBOR under the governing Japanese law.

Useful Resources

Industry Groups

Article | MARKETS
SOFR Takes Over
Ready your U.S. dollar LIBOR portfolio for transition under new laws and regulation.
    Podcasts | MARKETS
Leaving LIBOR Part V: SOFR Takes Over

18:43 In this podcast episode, we discuss the latest developments in the transition away from the London Interbank Offered Rate (LIBOR) to the Secured Overnight Financing Rate (SOFR). With SOFR now the dominant index used for new transactions in trading and lending markets we discuss the implications for remaining USD LIBOR portfolios and what the recent Federal Legislation, aimed at reducing market transition risks, means for our clients.
Article | MARKETS
Less Than One Month Until LIBOR Ceases
Take the final steps to ensure your organization is ready to trade without LIBOR.
    Podcasts | MARKETS
Leaving Libor Part IV: Approaching Year End
17:25 Hear the latest developments in Secured Overnight Financing Rate markets and drivers for improvements in liquidity. Thomas Pluta, Global Head of Linear Rates Trading, and Chris Palmer, Head of the LIBOR Transition Program, join Greg Geffen, Head of North America Corporate Interest Rate Derivatives, to discuss the regulatory guidance to cease initiation of new use of USD LIBOR products.
    Podcasts | MARKETS
Leaving LIBOR Part III: SOFR First
17:05 In this podcast episode, we discuss the latest developments in the transition away from the London Interbank Offered Rate (LIBOR) to the Secured Overnight Financing Rate (SOFR) and SOFR First, the upcoming July 26th date in which interdealer trading conventions switch from LIBOR to SOFR for USD linear interest rate swaps. Thomas Pluta, J.P. Morgan’s global head of linear rates trading, and Chris Palmer, head of J.P. Morgan’s LIBOR transition program, join J.P. Morgan’s Luis Asturizaga to discuss what to expect as we approach SOFR First and what’s next for SOFR Term Rates and the Credit Sensitive Rate.
Resource | MARKETS
IBOR Reform Frequently Asked Questions
Key questions to help you prepare for the transition.
    Podcasts | MARKETS
U.S. Dollar LIBOR Transition Update
31:23 J.P. Morgan’s Chris Palmer, head of firm-wide LIBOR Transition Program, Josh Younger, head of U.S. Interest Rate Derivatives Strategy, and Ben Kinney, co-Head of Global Rates Sales discuss recent regulatory announcements and the practical implications of a USD LIBOR extension. Recorded December 4, 2020.
    Podcasts | MARKETS
Benchmark Reform Around the World

31:03 In our second podcast episode, J.P. Morgan's Charles Bristow, global head of Rates, Chris Palmer, who leads the firm-wide LIBOR transition program and Cyprien Decoux, head of Rates Structuring EMEA, discuss international benchmark reform.

Article | MARKETS
LIBOR and the New Normal
J.P. Morgan outlines the path for adopting Risk-Free Rates (RFRs), as global markets transition away from the London Interbank Offer Rate (LIBOR).

Changes to Interbank Offered Rates (IBORs) and other benchmark rates: Certain interest rate benchmarks are, or may in the future become, subject to ongoing international, national and other regulatory guidance, reform and proposals for reform. For more information, please consult: https://www.jpmorgan.com/global/disclosures/interbank_offered_rates

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© 2019 JPMorgan Chase & Co. All rights reserved. J.P. Morgan is a marketing name for investment banking businesses of JPMorgan Chase & Co. and its subsidiaries and affiliates worldwide. Bank products and services, including certain lending, derivative and other commercial banking activities, are offered by JPMorgan Chase Bank N.A. (JPMCB), including through its authorized branches and other global affiliates registered with local authorities as appropriate. Securities products and services, including execution services, are offered in the United States and in other jurisdictions worldwide by J.P. Morgan Securities LLC (JPMS LLC), in EMEA by J.P. Morgan Securities plc (JPMS plc), J.P. Morgan AG (JPM AG), J.P. Morgan Dublin plc (JPMD) and by other appropriately licensed global affiliates. JPMCB, JPMS LLC and JPMS plc are principal subsidiaries of JPMorgan Chase & Co. For information on which legal entities offer investment banking products and services in each jurisdiction, please consult: www.jpmorgan.com/ib-legal-entities. For important Singapore disclosures, please consult: https://www.jpmorgan.com/country/GB/EN/disclosures/apac-legal-entity-information#Singapore. For important disclosures in respect of securities transactions, please consult: www.jpmorgan.com/securities-transactions and in respect of over-the-counter equity derivatives transactions, please consult: www.jpmorgan.com/otc-equity-derivative-transactions.

For additional regulatory disclosures, please consult: www.jpmorgan.com/disclosures.