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Long live SOFR for Swaps

Long live SOFR for Swaps

By Daniel Flaim, Managing Director, North America Interest Rate Derivatives

New York, New York | May 18, 2023 – It is officially the end of the line for LIBOR. After some 30+ years as “the world’s most important number,” and the last six years on an extended farewell tour, the London Interbank Offered Rate will officially be retired as a benchmark for U.S. dollar swaps transactions. CME Group Completed its conversion LCH will adopt the Secured overnight Financing rate (SOFR) in April as the benchmark for OTC derivatives. Complete its conversion On May 20, the swaps will include U.S. Dollar LIBOR and fixed interest rate swaps. By June, approximately $60 trillion of U.S. dollars contracts will have been secured for SOFR.

In 2017, regulators first announced plans for LIBOR to be phased out. This ushered in a protracted death marche that saw a gradual but steady migration from the decades-old standard. Ultimately, the Alternative Reference Rates Committee (ARRC) selected SOFR as the overnight benchmark rate to use in certain new U.S. dollar derivatives and financial contracts, and the financial industry—including regulators, central banks, trading venues and other market participants—have spent the…

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