Alternative Reference Rates

In recent years, global regulators have emphasized the need for transparency and robust governance in the administration of benchmarks. SIFMA, as the U.S. regional member of the Global Financial Markets Association (GFMA), was an early proponent of global reform efforts with the November 2012 publication of its Principles for Financial Benchmarks and is engaged with and supportive of efforts by global regulatory bodies related to market standards and principles for benchmarks.

Global regulators have also recognized that the secular decline in wholesale unsecured short-term funding by banks poses serious structural risks for unsecured benchmarks. Market participants have been working to review and analyze the transition issues associated with a move to alternative reference rates. In particular, a July 2014 report by the FSB’s Official Sector Steering Group (“OSSG”) highlighted the importance of encouraging market participants to have more robust fallback provisions in contracts or financial instruments that reference a benchmark in the event of cessation of the referenced benchmark.

In June 2017, the Federal Reserve’s Alternative Reference Rate Committee (“ARRC”) selected the Secured Overnight Funding Rate as the rate that, in its consensus view, represents best practice for use in certain new U.S. dollar derivatives and other financial contracts. More recently, the ARRC established several product specific sub-working groups for relevant stakeholders to identify and analyze transitional issues associated with a shift away from U.S. dollar LIBOR. SIFMA is committed to working in close cooperation with industry, U.S. and global regulators and trade associations to promote discussion on these important transition issues, address any uncertainties, and support the successful implementation of any forthcoming reference rate changes.

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