Federal Reserve Issues Proposed Rules Under LIBOR Act

On July 19, the Federal Reserve issued a notice of proposed rulemaking ("NPR") that would implement the Federal LIBOR Act. The NPR focuses primarily on identifying the particular version of SOFR that will apply to legacy contracts covered by the Act. For contracts that reference 1-, 3-, 6- or 12-month LIBOR, the NPR would apply the following SOFR-based rates plus a spread adjustment (as specified in the Act):

• For most contracts and securities, Term SOFR rate with a comparable tenor;
• For derivatives, the SOFR rate used in the ISDA protocol (30-day compounded SOFR in arrears);
• For contracts and securities issued by the GSEs (Freddie, Fannie), 30-day average SOFR; and
• For consumer contracts, Term SOFR but the spread adjustment would be implemented over a one-year period starting with the end of LIBOR.