CFTC U S Commodity Futures Trading Commission : 17 CFR Part 50 Swap Clearing Requirement To Account for the Transition From LIBOR and Other IBORs to Alternative Reference Rates

66476	Federal Register / Vol. 86, No. 223 / Tuesday, November 23, 2021 / Proposed Rules

EC135T2, EC135T2+, and EC135T3 helicopters, certificated in any category, as identified in European Union Aviation Safety Agency (EASA) AD 2021-0149, dated July 5, 2021 (EASA 2021-0149).

(d) Subject

Joint Aircraft Service Component (JASC) Code: 2510, Flight Compartment Equipment.

(e) Unsafe Condition

This AD was prompted by a report of restricted collective lever movement. Subsequent inspection determined that the emergency flashlight was stuck under that lever caused by entanglement of the emergency flashlight strap with the cargo hook emergency release lever, causing the emergency flashlight to leave its seat. The FAA is issuing this AD to address entanglement of the emergency flashlight strap with the cargo hook emergency release lever. The unsafe condition, if not addressed, could result in reduced control of the helicopter, resulting in damage to the helicopter and injury to occupants.

(f) Compliance

Comply with this AD within the compliance times specified, unless already done.

(g) Requirements

Except as specified in paragraph (h) of this AD: Comply with all required actions and compliance times specified in, and in accordance with, EASA AD 2021-0149.

1. Exceptions to EASA AD 2021-0149
2. 1. Where EASA AD 2021-0149 refers to its effective date, this AD requires using the effective date of this AD.
   2. This AD does not mandate compliance with the ''Remarks'' section of EASA AD 2021-0149.
3. Alternative Methods of Compliance (AMOCs)
4. 1. The Manager, International Validation Branch, FAA, has the authority to approve AMOCs for this AD, if requested using the procedures found in 14 CFR 39.19. In accordance with 14 CFR 39.19, send your request to your principal inspector or local Flight Standards District Office, as appropriate. If sending information directly to the manager of the International Validation Branch, send it to the attention of the person identified in paragraph (j)(2) of this AD. Information may be emailed to:[e-mail].
   2. Before using any approved AMOC, notify your appropriate principal inspector, or lacking a principal inspector, the manager of the local flight standards district office/ certificate holding district office.
5. Related Information
6. 1. For EASA AD 2021-0149, contact EASA, Konrad-Adenauer-Ufer 3, 50668 Cologne, Germany; telephone [phone]; email [e-mail]; internet www.easa.europa.eu. You may view this material at the FAA, Office of the Regional Counsel, Southwest Region, 10101 Hillwood Pkwy., Room 6N-321, Fort Worth, TX 76177. For information on the availability of this

material at the FAA, call [phone]. This material may be found in the AD docket at https://www.regulations.gov by searching for and locating Docket No. FAA-2021-1012.

1. For more information about this AD, contact Hal Jensen, Aerospace Engineer, Operational Safety Branch, FAA, 950 L'Enfant Plaza SW, Washington, DC 20024; telephone [phone]; email hal.jensen@ faa.gov.
   Issued on November 16, 2021.
   Lance T. Gant,

Director, Compliance & Airworthiness Division, Aircraft Certification Service.

[FR Doc. 2021-25396 Filed 11-22-21; 8:45 am]

BILLING CODE 4910-13-P

COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 50

RIN 3038-AF18

Swap Clearing Requirement To Account for the Transition From LIBOR and Other IBORs to Alternative Reference Rates

AGENCY: Commodity Futures Trading Commission.

ACTION: Request for information and comment.

SUMMARY: The Commodity Futures Trading Commission (Commission or CFTC) is seeking information and public comment on how the Commission could amend its swap clearing requirement to address the cessation of certain interbank offered rates (IBORs) (e.g., the London Interbank Offered Rate (LIBOR)) used as benchmark reference rates and the market adoption of alternative reference rates; namely, overnight, nearly risk-free reference rates (RFRs). The Commission is requesting input from market participants and all interested members of the public on aspects of the Commission's swap clearing requirement that may be affected by the transition from certain IBORs to alternative reference rates. DATES: Comments must be received on or before January 24, 2022.

ADDRESSES: You may submit comments, identified by RIN 3038-AF18, by any of the following methods:

• CFTC Comments Portal: https:// comments.cftc.gov. Select the ''Submit Comments'' link for this rulemaking and follow the instructions on the Public Comment Form.
• Mail: Send to Christopher Kirkpatrick, Secretary of the Commission, Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street NW, Washington, DC 20581.

• Hand Delivery/Courier: Follow the same instructions as for Mail, above. Please submit your comments using only one of these methods. Submissions through the CFTC Comments Portal are encouraged. All comments must be submitted in English, or if not, accompanied by an English translation. Comments will be posted as received to https://comments.cftc.gov. You should submit only information that you wish to make available publicly. If you wish the Commission to consider information that you believe is exempt from disclosure under the Freedom of Information Act, a petition for confidential treatment of the exempt information may be submitted according to the procedures established in § 145.9 of the Commission's regulations. The Commission reserves the right, but shall have no obligation, to review, pre- screen, filter, redact, refuse or remove any or all of your submission from https://comments.cftc.gov that it may deem to be inappropriate for publication, such as obscene language.

FOR FURTHER INFORMATION CONTACT: Sarah E. Josephson, Deputy Director, at [e-mail]; Melissa D'Arcy, Special Counsel, at [e-mail]; or Daniel O'Connell, Special Counsel, at [e-mail]; each in the Division of Clearing and Risk at the Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street NW, Washington, DC 20581.

SUPPLEMENTARY INFORMATION:

Table of Contents

1. Background
2. 1. The Commission's Swap Clearing Requirement
   2. The End of LIBOR
   3. Identification of Alternative Reference Rates
   4. Transition to Alternative Reference Rates
   5. International Regulatory Developments II. Market Adoption of Alternative Reference
      Rates
   1. Industry Initiatives
   2. Availability of Clearing
   3. Current Trends in Alternative Reference Rates

III. Request for Information

1. Swaps Subject to the Clearing Requirement
2. Swaps Not Currently Subject to the Clearing Requirement

IV. Request for Comment

1. General Request for Comment
2. Specific Requests for Comment

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I. Background

A. The Commission's Swap Clearing Requirement

Over a decade has passed since the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) 1 established a comprehensive new regulatory framework for swaps. Title VII of the Dodd-Frank Act (Title VII) amended the Commodity Exchange Act (CEA) to require, among other things, that a swap be cleared through a derivatives clearing organization (DCO) that is registered under the CEA or a DCO that is exempt from registration under the CEA if the Commission has determined that the swap, or group, category, type, or class of swap, is required to be cleared, unless an exception to the clearing requirement applies.2

The CEA, as amended by Title VII, provides two avenues for the Commission to issue a clearing requirement determination. First, under Section 2(h)(2)(A) of the CEA, the Commission may issue a clearing requirement determination based on a Commission-initiated review of a swap.3 Second, under Section 2(h)(2)(B) of the CEA, the Commission may issue a clearing requirement determination based on a swap submission from a DCO.4

The Commission has issued two clearing requirement determinations. The first clearing requirement determination (First Determination) was adopted in 2012 and covered certain credit default swap indexes, and interest rate swaps in four currencies and in four classes: (1) Fixed-to-floating swaps; (2) basis swaps; (3) forward rate agreements (FRAs); and (4) overnight index swaps

1. Dodd-FrankWall Street Reform and Consumer Protection Act, Public Law 111-203, 124 Stat. 1376 (2010).
2. Section 2(h)(1)(A) of the CEA, 7 U.S.C. 2(h)(1)(A).
3. 7 U.S.C. 2(h)(2)(A). Commission regulation 39.5(c) sets forth the procedures for Commission- initiated reviews of swaps that have not been accepted for clearing by a DCO to determine whether they should be required to be cleared. 17 CFR 39.5(c).
4. Section 2(h)(2)(B) of the CEA, 7 U.S.C. 2(h)(2)(B), and the implementing regulations in Commission regulation 39.5(b), require a DCO to submit to the Commission each swap, or any group, category, type, or class of swaps, that it plans to accept for clearing. Section 2(h)(2)(B)-(C) of the CEA describes the process by which the Commission is required to review swap submissions from DCOs to determine whether the swaps should be subject to the clearing requirement. Commission regulation 39.5(b) establishes the procedures for the submission of swaps by a DCO to the Commission for a clearing requirement determination.

(OIS).5 The four classes of interest rate swaps required to be cleared, along with their specifications, discussed below, are set forth in Commission regulation

50.4 (Clearing Requirement).6 The second clearing requirement determination (Second Determination) was adopted in 2016 and covered interest rate swaps in nine additional currencies.7

Section 2(h)(2)(D)(ii) of the CEA requires the Commission to consider the following five factors when making a clearing requirement determination: (I) The existence of significant outstanding notional exposures, trading liquidity, and adequate pricing data; (II) the availability of rule framework, capacity, operational expertise and resources, and credit support infrastructure to clear the contract on terms that are consistent with the material terms and trading conventions on which the contract is traded; (III) the effect on the mitigation of systemic risk, taking into account the size of the market for such contract and the resources of the DCOs available to clear the contract; (IV) the effect on competition, including appropriate fees and charges applied to clearing; and (V) the existence of reasonable legal certainty in the event of the insolvency of the relevant DCO or 1 or more of its clearing members with regard to the treatment of customer and swap counterparty positions, funds, and property.8 The Commission considered each factor in making both clearing requirement determinations.

The Commission has explained in prior clearing requirement determinations that while there exists a wide degree of variability in contract specifications for interest rate swaps,9

1. Clearing Requirement Determination Under Section 2(h) of the CEA; Final Rule, 77 FR 74284 (Dec. 13, 2012).
2. 17 CFR 50.4.
3. Clearing Requirement Determination Under Section 2(h) of the Commodity Exchange Act for Interest Rate Swaps; Final Rule, 81 FR 71202 (Oct. 14, 2016). The Commission adopted the Second Determination largely in order to further harmonize its Clearing Requirement with those of other jurisdictions, specifically: Australia, Canada, the European Union, Hong Kong, Mexico, Singapore, and Switzerland. Id. at 71203-05. Harmonizing the Commission's Clearing Requirement with other jurisdictions' clearing requirements serves an important anti-evasion goal. As the Commission explained, if a non-U.S. jurisdiction issued a clearing requirement and a swap dealer located in the U.S. were not subject to that non-U.S. clearing requirement, then a swap market participant in the non-U.S. jurisdiction could potentially avoid the non-U.S. clearing requirement by entering into a swap with the swap dealer located in the U.S. Id. at 71203.
4. 7 U.S.C. 2(h)(2)(D)(ii).
5. Clearing Requirement Determination Under Section 2(h) of the CEA; Notice of Proposed Rulemaking, 77 FR 47170, 47186 & n.77 (Aug. 7, 2012) (citing a Federal Reserve Bank of New York

there also exist certain conventions and specifications that DCOs and market participants commonly use, and which allow classes of swaps, and primary specifications within each class, to be identified.10 The Commission has adopted clearing requirement determinations for four classes of swaps based on these common conventions and specifications, and submissions from DCOs of swaps accepted for clearing. In the notice of proposed rulemaking preceding the First Determination, consistent with the factors set forth in CEA section 2(h)(2)(D)(ii), the Commission proposed to adopt a clearing requirement after concluding that each of the four swap classes being cleared had significant outstanding notional amounts and trading liquidity, and that a large percentage of each class was already being cleared.11 The Commission reaffirmed those conclusions in the final rule.12 The Commission also identified six specifications for the interest rate swaps that are subject to the clearing requirement: (1) The currency in which the notional and payment amounts are specified; (2) the rates referenced for each leg of the swap; (3) the stated termination date of the swap; (4) whether the swap contains optionality, as specified by the DCOs; (5) whether the swap contains dual currencies; and

1. whether the swap contains conditional notional amounts.13 Now, as the international regulatory community and financial markets transition from IBORs to alternative reference rates, the Commission is requesting information and comment on each of the swaps currently subject to the clearing requirement, and whether the Commission should update any of its prior determinations due to the

staff report that over 10,500 different combinations of significant interest rate swaps terms had been identified in a single three-month period in 2010).

1. First Determination, 77 FR 74301.
2. 77 FR 47194-96 (discussing data from the Bank of International Settlements, TriOptima, the G14 Dealers to the OTC Derivatives Supervisors Group, and LCH).
3. First Determination, 77 FR 74307-08.
4. Id. at 74302-03, 74332. The term ''conditional notional amount'' refers to a notional amount that is subject to change over the term of a swap based on a condition that the swap counterparties establish upon the execution of the swap, such that the notional amount of the swap is unknown and may change based on the occurrence of a future event. Id. at 74302 n.108. Additionally, the Commission believed that swaps with optionality, multiple currency swaps, and swaps with notional amounts not specified at the time of execution give rise to concerns regarding accurate pricing and consistency across contracts, and should therefore be excluded from the clearing requirement. Id. at 74332. The Commission also stated that, as of the time of the final rulemaking for the First Determination, no DCO was offering swaps meeting these negative specifications for clearing. Id.

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ongoing and anticipated market-wide shift in reference rates.

The Commission's Clearing Requirement covers a number of swaps that reference IBORs: Swaps in multiple currencies in each of the fixed-to- floating swap, basis swap, and FRA class that refer to LIBOR are required to be cleared. The First Determination covered certain interest rate swaps in each of these classes referencing LIBOR in three currencies: U.S. dollars (USD), British pounds (GBP), and Japanese yen (JPY).14 The Second Determination covered certain fixed-to-floating interest rate swaps referencing LIBOR in Swiss francs (CHF).15

The Commission is monitoring changes to benchmark reference rates around the world and how those changes may affect trading liquidity and clearing availability, as well as the other factors discussed above, in different interest rate swap products. Although benchmark reforms are ongoing, there have been recent updates with respect to LIBOR rates for the major currencies, including USD, GBP, JPY, and CHF, that may warrant changes to the Clearing Requirement in the near future.

B. The End of LIBOR

LIBOR is an interest rate benchmark that is intended to measure the average rate at which a bank can obtain unsecured funding in the London interbank market for a given tenor and currency. It is among the world's most frequently referenced interest rate benchmarks and serves as a reference rate for a wide variety of derivatives and cash market products. LIBOR is calculated based on submissions from a panel of 11 to 16 contributor banks, depending on the currency, and is published on every London business day for five currencies (USD, GBP, Euro (EUR), CHF, and JPY) and seven tenors (overnight or spot next,16 1-week, 1- month, 2-month,3-month,6-month, and 12-month), resulting in 35 individual LIBOR rates. Each contributor bank submits data for all seven tenors in each currency for which it is on a panel.17

1. First Determination, 77 FR 74310-11.
2. Second Determination, 81 FR 71202.
3. The shortest tenor for USD, GBP, and EUR LIBOR is overnight; the shortest tenor for CHF and JPY LIBOR is spot next.
4. See generally ICE Benchmark Administration (IBA), LIBOR, available at https://www.theice.com/ iba/libor. The current contributor bank panel members are expected to fulfill their roles through the end of 2021, and all but one of the current USD LIBOR bank panel members are expected to continue submissions until June 30, 2023 for the overnight, 1-month, 3-month, 6-month,and 12- month tenors. IBA, ICE LIBOR Feedback Statement on Consultation on Potential Cessation, March 5, 2021, at 4 n.2 [hereinafter ''ICE LIBOR Feedback Statement on Consultation on Potential Cessation''],

The announcement in 2012 of government investigations concerning alleged manipulation of LIBOR, and a decline in the volume of interbank lending transactions that LIBOR is intended to measure, have given rise to concerns regarding the integrity and reliability of LIBOR and other IBORs.18 Notably, the Commission's enforcement actions against LIBOR manipulators helped to raise awareness about potential shortcomings in the reliability of LIBOR reports and calculations.19

In response to calls for reform, LIBOR was brought within the U.K. Financial Conduct Authority (FCA)'s regulatory scope and placed under IBA's administration.20 IBA has reformed LIBOR in a number of ways, including enhancing the benchmark's oversight procedures and establishing a new calculation methodology.21 However, regulators and global standard-setting bodies do not view these reforms as a long-term solution.

Following a public consultation by IBA launched in December 2020, on March 5, 2021,22 the FCA announced

available at https://www.theice.com/publicdocs/ ICE_LIBOR_feedback_statement_on_consultation_ on_potential_cessation.pdf.

1. See, e.g., International Organization of Securities Commissions (IOSCO), Principles for Financial Benchmarks, July 2013, at 1, available at https://www.iosco.org/library/pubdocs/pdf/ IOSCOPD415.pdf; David Bowman, et al., ''How Correlated Is LIBOR With Bank Funding Costs?,'' FEDS Notes, June 29, 2020, available at https://www.federalreserve.gov/econres/notes/feds-notes/how-correlated-is-libor-with-bank-funding-costs-20200629.htm; Alternative Reference Rates Committee, Second Report, Mar. 2018, at 1-3 [hereinafter ''ARRC Second Report''], available at https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2018/ARRC-Second-report.
2. See, e.g., In re Socie´ te´ Ge´ ne´ rale S.A., No. 18- 14 (CFTC June 4, 2018) ($475 million penalty); In re Deutsche Bank AG, No. 15-20(CFTC Apr. 23, 2015) ($800 million penalty); In re The Royal Bank of Scotland plc, No. 13-14(CFTC Feb. 6, 2013) ($325 million penalty); In re UBS AG, No. 13-09(CFTC Dec. 19, 2012) ($700 million penalty); In re Barclays PLC, No. 12-25(CFTC June 27, 2012) ($200 million penalty).
3. Previously, LIBOR was administered by the British Bankers Association.
4. See generally IBA, Methodology, available at https://www.theice.com/publicdocs/ICE_LIBOR_
   Methodology.pdf (describing IBA's current LIBOR calculation methodology); H.M. Treasury, The Wheatley Review of LIBOR: Final Report, Sept. 2012, available at https://
   assets.publishing.service.gov.uk/government/ uploads/system/uploads/attachment_data/file/ 191762/wheatley_review_libor_finalreport_
   280912.pdf (recommending reforms to LIBOR). See also Intercontinental Exchange (ICE), ICE LIBOR
   Evolution, Apr. 25, 2018, at 4, available at https:// www.theice.com/publicdocs/ICE_LIBOR_Evolution_ Report_25_April_2018.pdf (describing IBA's reforms to LIBOR since 2014). Among other revisions, IBA implemented changes to the way that panel banks form their LIBOR submissions by relying on a data-drivenwaterfall methodology.
5. See generally ICE LIBOR Feedback Statement on Consultation on Potential Cessation; IBA, ICE LIBOR Consultation on Potential Cessation, Dec.

that publication of LIBOR would not be provided by any administrator or be compelled after the final publication on Friday, December 31, 2021, for the following: 23

1. EUR LIBOR in all tenors;
2. CHF LIBOR in all tenors;
3. JPY LIBOR in the spot next, 1-

week, 2-month, and 12-month tenors;

1. GBP LIBOR in the overnight, 1- week, 2-month, and 12-month tenors; and
2. USD LIBOR in the 1-week and 2- month tenors.
   The FCA further determined that GBP and JPY LIBOR in 1-month,3-month, and 6-month tenors would no longer be representative of the underlying market and economic reality they are intended to measure after December 31, 2021, and that representativeness would not be restored. Additionally, the FCA determined that USD LIBOR in the overnight and 12-month tenors would cease after June 30, 2023, and that USD LIBOR in the 1-month,3-month, and 6- month tenors would not be representative after that date. The future of USD LIBOR in the 1-month,3-month, and 6-month tenors is uncertain because the FCA may decide to continue to publish those tenors based on a new methodology (i.e., on a synthetic basis). Following a public consultation, on September 29, 2021, the FCA confirmed that it would require LIBOR's administrator to continue publishing GBP and JPY LIBOR in the 1-,3-, and 6-month tenors, using a synthetic methodology based on term RFRs, through 2022.24 The Commission is monitoring these developments and will consider LIBOR's cessation in certain currencies and tenors as it evaluates potential changes to the Clearing

2020, available at https://www.theice.com/ publicdocs/ICE_LIBOR_Consultation_on_Potential_ Cessation.pdf.

1. FCA, FCA Announcement on Future Cessation and Loss of Representativeness of the LIBOR Benchmarks, Mar. 5, 2021, available at https:// www.fca.org.uk/publication/documents/future- cessation-loss-representativeness-libor- benchmarks.pdf.
2. FCA, ''Further arrangements for the orderly wind-downof LIBOR at end-2021,''Sept. 29, 2021, available at https://www.fca.org.uk/news/press- releases/further-arrangements-orderly-wind-down-libor-end-2021.The FCA also proposed to permit legacy use of synthetic GBP and JPY LIBOR in all contracts except cleared derivatives, citing clearinghouses' plans to transition cleared GBP, JPY, CHF, and EUR LIBOR rates to RFR contracts at the end of 2021. Accordingly, the FCA published an additional public consultation regarding the scope of legacy contracts that will be permitted to rely on the synthetic rates. FCA, ''CP21/29: Proposed decisions on the use of LIBOR (Articles 23C and 21A BMR),'' Sept. 29, 2021, available at https://www.fca.org.uk/publications/consultation- papers/cp21-29-proposed-decisions-libor-articles-23c-21a-bmr.The consultation closed on October 20, 2021. Id.

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Requirement, particularly because the LIBOR rates in four of the five LIBOR currencies serve as the floating rate in swap transactions that are currently subject to the Clearing Requirement. Although LIBOR in particular has been a major focus for regulators, there are other interest rates that have been,

or may in the future be, replaced by alternative reference rates. Additional IBORs and alternative reference rates are discussed in more detail below.

C. Identification of Alternative Reference Rates

The Commission has supported efforts in the U.S. and around the world to identify alternative reference rates to replace LIBOR and other IBORs in the event that they become non- representative.

In 2014, the Federal Reserve Board (FRB) and the Federal Reserve Bank of New York (FRBNY) convened the Alternative Reference Rates Committee (ARRC) as a body for private-market participants, alongside ex-officio banking and financial sector regulators, to identify alternatives to USD LIBOR and help ensure an orderly transition to alternative reference rates.25 The composition of the ARRC has changed over time, and currently includes a number of financial institutions, financial industry groups, and regulators, including the CFTC, the U.S. Department of the Treasury, and the U.S. Securities and Exchange Commission.26 On June 22, 2017, after studying several alternative reference rates and considering the input of market participants, the ARRC selected the Secured Overnight Financing Rate (SOFR) as its preferred alternative to USD LIBOR.27 SOFR measures the cost of overnight repurchase agreement transactions collateralized by U.S. Treasury securities.28 The FRBNY, in

1. See generally ARRC, About [hereinafter ''About the ARRC''], available at https://www.newyorkfed. org/arrc/about. See also ARRC, ARRC Minutes for the December 12, 2014 Organizational Meeting, available at https://www.newyorkfed.org/ medialibrary/microsites/arrc/files/2014/Dec-12-2014-ARRC-Minutes.pdf.
2. About the ARRC.
3. ARRC, ''The ARRC Selects a Broad Repo Rate as its Preferred Alternative Reference Rate,'' June 22, 2017, available athttps://www.newyorkfed.org/ medialibrary/microsites/arrc/files/2017/ARRC-press-release-Jun-22-2017.pdf. See also ARRC, Interim Report and Consultation, May 2016, at 13, available at https://www.newyorkfed.org/ medialibrary/Microsites/arrc/files/2016/arrc-interim-report-and-consultation.pdf?la=en (discussing other alternative reference rates that the ARRC considered).
4. FRBNY, Statement Introducing the Treasury Repo Reference Rates, Apr. 3, 2018 [hereinafter ''Statement Introducing the Treasury Repo
   Reference Rates''], available at https:// www.newyorkfed.org/markets/opolicy/operating_

cooperation with the U.S. Office of Financial Research, first published SOFR on April 3, 2018,29 and publishes the rate each New York business day at 8:00 a.m. ET.30

SOFR is comprised of data from several sources: (1) Tri-party repo data;

1. the Fixed Income Clearing Corporation's (FICC) General Collateral Finance Repo data; and (3) bilateral Treasury repo transactions cleared through FICC.31 The ARRC selected SOFR as its preferred USD LIBOR alternative based on an assessment of a number of factors, including the depth of the underlying market, the robustness of the rate over time, the rate's usefulness to market participants, and consistency with IOSCO's Principles for Financial Benchmarks.32 SOFR is based on a far deeper pool of underlying transactions than USD LIBOR. According to the ARRC, since SOFR was first published, the volume of underlying transactions has averaged over $980 billion daily, and reflects trading by a diverse group of market participants.33 In comparison, the median daily volume of 3-month funding transactions between October 2016 and June 2017, underlying the most heavily-referenced USD LIBOR tenor, amounted to less than $1 billion.34 The ARRC has developed a Paced Transition Plan, discussed below, to facilitate an orderly and incremental transition from USD LIBOR to SOFR.35

policy_180403. See also FRBNY, Secured Overnight Financing Rate Data [hereinafter ''SOFR Data''], available at https://apps.newyorkfed.org/markets/ autorates/SOFR#:∼:text=The%20SOFR%20 is%20calculated%20as,LLC%2C%20 an%20affiliate%20of%20the; FRBNY, Additional Information about the Treasury Repo Reference Rates, available at https://www.newyorkfed.org/ markets/treasury-repo-reference-rates-information.

1. Statement Introducing the Treasury Repo Reference Rates.
2. SOFR Data.
3. Id.
4. ARRC Second Report at 6.
5. ARRC, Frequently Asked Questions, Dec. 18, 2020, at 4-5,available at https:// www.newyorkfed.org/medialibrary/Microsites/arrc/ files/ARRC-faq.pdf.
6. ARRC Second Report at 1-3.
7. Although SOFR is widely viewed as the primary replacement for USD LIBOR, and is preferred by the ARRC, other alternatives are available to market participants, including those who desire a benchmark with a credit risk component. One such alternative is AMERIBOR, which is administered by the American Financial Exchange (AFX) and is calculated based on actual borrowing costs between small and midsize banks that are AFX members. William Shaw, ''Libor Replacement Race Picks Up with Ameribor Swap Debut,'' Bloomberg, Dec. 3, 2020, available at https://www.bloomberg.com/news/articles/2020-12-
   03/libor-replacement-race-picks-up-with-ameribor-swap-deal-debut#:∼:text=The%20push%20 to%20replace%20Libor,notional %20%2424%20million%20on%20Tuesday. Another potential alternative is the ICE Bank Yield

Regulators and working groups in other jurisdictions are also endeavoring to identify, develop, and implement alternative reference rates.36 The FSB's November 2020 report Reforming Major Interest Rate Benchmarks highlights plans to develop alternatives for numerous other IBORs.37 A table of

Index (IBYI), which ICE has proposed as a replacement for USD LIBOR. If implemented, IBYI would measure the average yields at which investors are willing to invest USD funds on a wholesale, senior, and unsecured basis in large, international banks over 1-month, 3-month,and 6- month periods. IBA, U.S. Dollar ICE Bank Yield Index Update, May 2020, at 3, available at https:// www.theice.com/publicdocs/Update_US_Dollar_ ICE_Bank_Yield_Index_May_2020.pdf. Unlike USD LIBOR, IBYI would be fully transaction-based. See id. at 3, 5-6.An additional potential alternative, Bloomberg's Short-TermBank Yield Index (BSBY), is a credit-sensitiveindex which can be added to SOFR or used as a standalone benchmark. Bloomberg, ''Bloomberg Confirms Its BSBY Short- Term Credit Sensitive Index Adheres to IOSCO Principles,'' Apr. 6, 2021, available at https:// www.bloomberg.com/company/press/bloomberg- confirms-its-bsby-short-term-credit-sensitive-index-adheres-to-iosco-principles/.See also Bloomberg, Bloomberg Short-TermBank Yield Index, available at https://www.bloomberg.com/professional/ product/indices/bsby/#:∼:text= The%20Bloomberg%20Short%2DTerm%20Bank, defines%20a%20forward%20term%20structure; Bloomberg, Bloomberg Short-TermBank Yield (BSBY) Index Methodology, Mar. 2021, available at https://assets.bbhub.io/professional/sites/10/BSBY- Methodology-Document-March-30-2021.pdf.

1. For further discussion of the ARRC and working groups in other LIBOR currency jurisdictions and key milestones, see generally International Swaps and Derivatives Association, Inc. et al. (ISDA), IBOR Global Benchmark Transition Report, June 2018, at 38-47 [hereinafter ''IBOR Global Benchmark Transition Report''], available at https://www.isda.org/2018/06/25/ibor-global-benchmark-transition-report/ibor-transition-report/. See also Working Group on Sterling Risk- Free Reference Rates (RFRWG) Top Level Priorities-2021, Bank of England, Jan. 2021, available at https://www.bankofengland.co.uk/-/media/boe/files/markets/benchmarks/rfr/rfr-working-group-roadmap.pdf;European Central Bank, ''Working group on euro risk-free rates,''
   available at https://www.ecb.europa.eu/paym/ interest_rate_benchmarks/WG_euro_risk-free_rates/ html/index.en.html; The National Working Group
   on CHF Reference Rates, NWG Milestones, available at https://www.snb.ch/en/ifor/finmkt/fnmkt_ benchm/id/finmkt_NWG_milestones; Study Group on Risk-FreeReference Rates, Bank of Japan, available at https://www.boj.or.jp/en/paym/market/ sg/index.htm/; Financial Stability Board (FSB), Reforming Major Interest Rate Benchmarks, Nov. 20, 2020, at 14-29[hereinafter ''Reforming Major Interest Rate Benchmarks''], available at https:// www.fsb.org/2020/11/reforming-major-interest-rate-benchmarks-2020-progress-report/.
2. See generally Reforming Major Interest Rate Benchmarks at 29-43,54-55.See also Andreas Schrimpf and Vladislav Sushko, ''Beyond Libor: a primer on the new reference rates,'' BIS Quarterly
   Review, Mar. 2019, at 35, available at https:// www.bis.org/publ/qtrpdf/r_qt1903e.pdf; Bank of England, Preparing for 2022: What You Need to Know about LIBOR Transition, Nov. 2018, at 10, https://www.bankofengland.co.uk/-/media/boe/files/markets/benchmarks/what-you-need-to-know-about-libor-transition.pdf;ISDA, et al., IBOR Global Benchmark Survey 2018 Transition Roadmap, Feb. 2018, at 32, https://www.isda.org/a/g2hEE/IBOR-

Continued

66480	Federal Register / Vol. 86, No. 223 / Tuesday, November 23, 2021 / Proposed Rules

those identified alternatives is included below.

ALTERNATIVE REFERENCE RATES IDENTIFIED FOR IBORS

Currency	Index	Identified alternative rate	Alternative rate	Secured	Published
administrator
Australian dollar (AUD) ...	Bank Bill Swap Rate	Reserve Bank of Aus-	Reserve Bank of Aus-	No ..................	Yes.
	(BBSW).	tralia Interbank Over-	tralia.
		night Cash Rate
		(AONIA).
Canadian dollar (CAD) ....	Canadian Dollar Offered	Canadian Overnight	Bank of Canada ..............	Yes .................	Yes.
	Rate (CDOR).	Repo Rate Average
		(CORRA).
CHF .................................	LIBOR .............................	Swiss Average Rate	SIX Swiss Exchange ......	Yes .................	Yes.
		Overnight (SARON).
EUR .................................	LIBOR .............................	Euro Short-Term Rate	European Central Bank ..	No ..................	Yes.
		(ÖSTR).
	Euro Overnight Index Av-	ÖSTR ...............................	European Central Bank ..	No ..................	Yes.
	erage (EONIA) 38.	ÖSTR ...............................
	Euro Interbank Offered	European Central Bank ..	No ..................	Yes.
	Rate (EURIBOR).
GBP .................................	LIBOR .............................	Sterling Overnight Index	Bank of England .............	No ..................	Yes.
		Average (SONIA).
Hong Kong dollar (HKD)	Hong Kong Interbank Of-	Hong Kong Dollar Over-	Treasury Market Associa-	No ..................	Yes.
	fered Rate (HIBOR).	night Index Average	tion.
		(HONIA).
JPY 39 ..............................	LIBOR .............................	Tokyo Overnight Average	Bank of Japan ................	No ..................	Yes.
		(TONA) Tokyo Inter-
		bank Offered Rate
		(TIBOR) Euroyen
		TIBOR.
Mexican peso (MXN) ......	Term Interbank Equi-	Overnight TIIE ................	Banco de Mexico ............	Yes .................	Yes.
	librium Interest Rate
	(TIIE).
Singapore dollar (SGD) ...	Singapore Dollar Swap	Singapore Overnight	Association of Banks in	No ..................	Yes.
	Offer Rate (SOR).	Rate Average (SORA).	Singapore.
	Singapore Interbank Of-	SORA ..............................	Association of Banks in	No ..................	Yes.
	fered Rate (SIBOR).		Singapore.

On July 6, 2021, the FSB published a progress report discussing the state of transition efforts and highlighting specific issues and challenges.40 In particular, the report highlighted the need for supervisory authorities to engage in a greater degree of coordination and communication to promote awareness of the urgency and scope of the transition away from LIBOR, and called on market participants to accelerate their adoption of alternatives. The report noted that, while significant progress had been made on some fronts, such as decreasing reliance on GBP LIBOR in favor of SONIA, transition efforts had lagged in other markets. For instance, the report observed that while use of SOFR derivatives had increased, activity in

USD LIBOR-based derivatives had grown over the past three years, and the share of outstanding SOFR derivatives remained small compared with USD LIBOR derivatives.41

As regulators and market participants in different jurisdictions work to identify alternative reference rates, the Commission anticipates that the interest rate swaps markets will evolve to incorporate those rates, with the goal of shifting all activity to the alternative reference rates before the relevant IBOR is discontinued. The Commission believes this process can occur organically, driven by market demand and DCO offerings.

D. Transition to Alternative Reference Rates

The transition to alternative reference rates in substitution for LIBOR, in particular, has been a priority for regulators and market participants following an announcement by Andrew Bailey, then-Chief Executive of the FCA, on July 27, 2017, that the FCA would not use its authority to compel or persuade LIBOR panel banks to contribute to the benchmark after

2021.42 Bailey urged market participants to begin planning for the cessation of LIBOR and to start transitioning to the use of alternative reference rates, highlighting the work already done to identify alternative reference rates in the U.S., U.K., and other LIBOR currency

Global-Transition-Roadmap-2018.pdf; Euro Short-

Term Rate (ÖSTR), European Central Bank,

available at https://www.ecb.europa.eu/stats/ financial_markets_and_interest_rates/euro_short- term_rate/html/index.en.html#:∼:text=The%20 euro%20short%2Dterm%20rate,activity %20on%201%20October%202019; Steering Committee for SOR & SIBOR Transition to SORA, Timelines to Cease Issuance of SOR and SIBOR- Linked Financial Products, Mar. 31, 2021, available

at https://abs.org.sg/docs/library/timelines-to-cease-issuance-of-sor-derivatives-and-sibor-linked-financial-products.pdf.

38 Under a revised calculation methodology,

EONIA is calculated as a spread of 8.5 basis points over the ÖSTR rate. EONIA is expected to be discontinued on January 3, 2022. Reforming Major Interest Rate Benchmarks at 18.

1. Multiple alternative reference rates are being offered to succeed JPY LIBOR. See generally note 66, infra.
2. FSB, Progress Report to the G20 on LIBOR Transition Issues, July 6, 2021, available at https:// www.fsb.org/wp-content/uploads/P060721.pdf.
3. Id. at 8-10.
4. Andrew Bailey, ''The future of Libor,'' July 27, 2017, available at https://www.fca.org.uk/news/ speeches/the-future-of-libor.