Reed Smith Client Alerts

The transition away from the LIBOR benchmark continues apace in the United States. On Tuesday, July 13, the Commodity Futures Trading Commission (CFTC or the Commission) Market Risk Advisory Committee (MRAC) voted to adopt a subcommittee recommendation called “SOFR First.” An initiative designed to facilitate the adoption of a secured overnight financing rate (SOFR) in lieu of LIBOR as the benchmark for many derivatives products, SOFR First establishes a phased transition for derivatives products and markets. Although the initiative does not have the force of law, SOFR First provides a best practices blueprint for market participants who face real pressure from regulators to abandon LIBOR.

SOFR First sets out a four-stage transition from LIBOR to SOFR. Phase 1 calls for the transition to occur in linear U.S. dollar swaps on July 26, 2021, in the interdealer market, while recommending that brokers’ screens for LIBOR linear swaps remain available until October 21, 2021, but for informational purposes only. Phase 2 will extend the transition in the interdealer market to cross-currency swaps; the target date for Phase 2 is September 21, 2021. Non-linear products traded in the interdealer market such as swaptions, caps, and floors will be included in Phase 3, with a transition date not yet established. The final phase will move beyond the interdealer market to cover exchange-traded products such as futures contracts.1

Acting CFTC Chairman Rostin Behnam, who is the sponsor of MRAC, observed that “it would be indefensible [as a market regulator] to stand by and allow market participants to mechanically continue down LIBOR’s road to obsolescence when a sustainable path is clearly in sight.”2 Behnam sees a supporting role in the transition from LIBOR not only for MRAC but also for the Commission itself, announcing that he intends to move forward with a proposal for mandatory clearing of SOFR swaps, a goal he aims to accomplish by next year. And to encourage trading of SOFR swaps on swap execution facilities (SEFs) in the meantime, the Acting Chairman stated that CFTC staff “expects” that SEFs will apply the Commission rule prohibiting post-trade name give up – a practice the Commission previously determined discourages certain market participants from trading on SEFs – to SOFR swaps as though they are subject to mandatory clearing.3

Commission staff also weighed in on the transition from LIBOR, with the CFTC’s Division of Market Oversight and Division of Market Participants (the Divisions) declaring that “continued reliance on LIBOR benchmarks poses risks to the stability and integrity of [the derivatives] markets and consumer protection.”4 For this reason, the Divisions stated that “the use of LIBOR rates in new contracts should, with very limited exceptions [for certain LIBOR-exposure-reducing transactions], be ceased as soon as practicable and no later than December 31, 2021 to avoid these risks.”5 While acknowledging that SOFR First is not binding, the Divisions “strongly encourage market participants and SEFS to consider following SOFR First.”6

  1. See SOFR First/MRAC Subcommittee Responses to FAQs/Recommendation (June 8, 2021), available at
  2. Opening Statement of Acting Chairman Rostin Behnam before the Market Risk Advisory Committee (July 13, 2021), available at
  3. See id.
  4. Statement from CFTC Staff on Transition Away from LIBOR (July 14, 2021), available at
  5. Id. (footnotes omitted).
  6. Id.

Client Alert 2021-198