On August 31, the Commodity Futures Trading Commission’s (CFTC) Division of Swap Dealer and Intermediary Oversight (DSIO) issued a no-action letter (No-Action Letter 20-23) providing additional relief to swap dealers (SDs) and other market participants related to the industry-wide initiative to transition from swaps that reference the London Interbank Offered Rate (LIBOR) and other interbank offered rates (IBORs) to swaps that reference alternative benchmarks.
No-Action Letter 20-23 revises and supersedes previously issued CFTC Staff Letter 19-26, discussed further here, modifying certain no-action positions and providing additional no-action relief: (1) resulting from the announced intention of certain central counterparties (CCPs) to transition the discounting and price alignment interest for USD-denominated interest rate swaps from EFFR to SOFR in Q3 2020; and (2) to facilitate the amendment of Credit Support Annexes (CSAs) to adjust the interest rates paid on posted collateral for uncleared swaps.
In No-Action Letter 20-23, the DSIO states that, if a person amends a swap that uses LIBOR or other IBORs solely to replace that rate with an alternative benchmark, that change will not count as a new swap for purposes of the de minimus threshold at which the person would be required to register as a SD. In addition, DSIO will not recommend enforcement action against any SD for failing to comply with certain other eligibility requirements, uncleared swap margin requirements, business conduct requirements, documentation and swap processing requirements (including confirmation, swap trading relationship documentation requirements and reconciliation requirements), to the extent that compliance would be required solely as a result of amending certain types of swaps to reference an alternative benchmark instead of LIBOR or another IBOR.
Additionally, DSIO notes that it will not recommend CFTC enforcement action against an SD for failure to comply with certain eligibility requirements resulting from the status of a covered interest rate swap (Covered IRS) “used to hedge or mitigate commercial risk” entered into with a commercial-end user (non-financial entities under regulations 50.50(c) and 50.51.(b)(2)) or cooperative (under section 2(h)(1)(A) of the CEA), if compliance would be required solely to replace that rate with an alternative benchmark.
The letter is available here.