LIBOR Update – Successful Launch of RFR First
October 4, 2021
On September 21, the cross-currency swaps market, in a coordinated effort called “RFR First,” moved to risk-free rates (RFRs) in all swaps between the US dollar, Japanese yen, sterling, and Swiss franc. According to Bloomberg, in the five days following the RFR First launch, cross-currency swaps linked to SOFR outstripped those of USD LIBOR and are “using SOFR as a benchmark more than at any other time during the transition.”
RFR First marks the second phase in the Commodity Futures Trading Commission (CFTC) market best practices for switching interdealer trading conventions from USD LIBOR to SOFR. The best practices, announced on June 8, 2021, are called “SOFR First,” and were developed by the CFTC’s Market Risk Advisory Committee (MRAC).
SOFR First represented a major prioritization of interdealer trading in SOFR rather than LIBOR. Specifically, it called for interdealer brokers to replace trading of LIBOR linear swaps with trading of SOFR linear swaps – a move successfully completed on July 26, 2021. The SOFR First best practices recommend keeping interdealer brokers’ screens for LIBOR linear swaps available for informational purposes, but not trading activity, until October 22, 2021, and to be shut off entirely after this date.
“The MRAC’s SOFR First recommendations will play a key role in ensuring a smooth transition away from LIBOR. The September move of cross-currency basis swap conventions is important in recognizing that many jurisdictions will be moving from LIBOR to risk-free rates, and that creating a consistent global transition matters to many market participants,” said Tom Wipf, ARRC Chairman and Vice Chairman of Institutional Securities at Morgan Stanley.