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Regulators Tell Banks It Is Time to Stop Using Libor

Regulators are ramping up efforts to end Libor trades by year-end.

The Commodity Futures Trading Commission last week told brokers that facilitate derivatives trading among large banks that they should stop using Libor, or the London interbank offered rate, as a reference rate by July 26. The Tuesday announcement could accelerate the push to phase out the troubled interest-rate benchmark, which underpins trillions of dollars worth of financial contracts. Authorities decided several years ago, after a widespread Libor-rigging scandal, that it should disappear by the end of 2021.

The new guidelines are from a CFTC subcommittee working under an initiative dubbed “SOFR First.” It is meant to persuade market players to adopt SOFR, or the Secured Overnight Financing Rate, as Libor’s replacement. SOFR is the alternative preferred by regulators and many major banks.

As of July 26, big banks like JPMorgan Chase & Co. will see certain derivatives priced in SOFR rather than Libor on dealer screens. Libor conventions will remain for information purposes only.

“A lot of this is about inertia,” said Tom Wipf, a Morgan Stanley banker. “We face a reality of no new Libor contracts by the end of this year. We don’t have a lot of time to do this.”

Regulators Tell Banks It Is Time to Stop Using Libor Source link Regulators Tell Banks It Is Time to Stop Using Libor

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