The ARRC published a white paper that describes a formula to calculate a fallback from the USD LIBOR ICE Swap Rate to a spread-adjusted SOFR Swap Rate. Contracts that are indirectly linked to USD LIBOR through reference to USD ICE Swap Rates are not covered by existing fallback provisions. The paper is intended to facilitate conversations within industry bodies and between counterparties on incorporating robust fallbacks in both legacy and new contracts referencing the USD LIBOR ICE Swap Rate.

The ARRC released an addendum to its recommendations that a voluntary exchange of cash compensation take place between counterparties to legacy swaptions referencing USD LIBOR and that counterparties specify an agreed discount rate using the SOFR for new swaptions expiring after October 16, 2020. The recommendation of voluntary compensation is intended to resolve uncertainty associated with the transition from the use of the Effective Federal Funds Rate to the SOFR for discounting cleared derivatives.

In making a recommendation, the ARRC incorporated feedback received on its public consultation on this matter, which received responses from more than 30 sell-side and buy-side market participants.

The ARRC released its recommendations that a voluntary exchange of cash compensation take place between counterparties to legacy swaptions referencing USD LIBOR and that counterparties specify an agreed discount rate using the SOFR for new swaptions expiring after October 16, 2020. The recommendation of voluntary compensation is intended to resolve uncertainty associated with the transition from the use of the Effective Federal Funds Rate to the SOFR for discounting cleared derivatives.

ARRC Chair Tom Wipf sent a letter to ARRC Members urging them to be prepared to sign onto the International Swaps and Derivatives Association's (ISDA) IBOR Fallback Protocol, consistent with the ARRC's recommended Best Practices. Adherents to the Protocol will agree that existing derivative transactions that they have entered into with other adherents will incorporate ISDA's new fallback language.

The ARRC previously requested that the IRS and Treasury issue a non-regulatory relief facilitating adherence to the ISDA Protocol, and requested that such relief also covers bilateral contract modifications. At the request of the IRS and Treasury, the ARRC submitted an additional email explaining a technical aspect of the request to accommodate limited bilateral changes to the ISDA Protocol.

The ARRC has filed a letter with the CFTC's Division of Swap Dealer and Intermediary Oversight ("DSIO") that requests that staff:

(i) grant no-action relief providing that the exchange of voluntary compensation for a swaption, or the amendment of a swaption's terms to reflect an agreement regarding the discount rate that will be used by a derivatives clearing organization ("DCO") in advance of the DCO's discounting changes would be treated as a "Qualifying Amendment" under DSIO's existing IBOR relief letter (CFTC Letter 19-26) and that therefore such actions would not result in the swap being newly subject to the regulatory requirements covered by CFTC letter 19-26; and

(ii) clarify that CSA amendments would not trigger the regulatory requirements covered by CFTC letter 19-26.

The ARRC recently released recommendations for swaptions affected by the CCP discounting transition to SOFR. Among other actions, the ARRC recommended that market participants amend their legacy swaptions to bring them in scope for ISDA Supplement 64. Additionally, as part of its Best Practice recommendations, the ARRC recommended that market participants amend interdealer CSAs to use SOFR for USD collateral by the end of this year.

The ARRC is cognizant that the desire for clarity around related regulatory impacts may be a factor impacting the ability of market participants to agree to an amendment of their swaption positions or of their CSA. In order to achieve this clarity, the ARRC has requested that the CFTC consider these actions.

The ARRC released final recommendations for new interdealer cross-currency basis swaps that use SOFR and overnight risk-free rates (RFRs) recommended by National Working Groups (NWGs) in other jurisdictions. The conventions outlined in this document are for market participants’ voluntary use.

This report details preliminary considerations for the use of risk-free rates (RFRs) in interdealer cross-currency swaps.