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ARTICLE · 09 JUNE 2020

Back To The Well: ARRC Seeks Market Input On Simplifying Spread Adjustment Calculation

Jones Day
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The Development: The Alternative Reference Rates Committee ("ARRC") announced the results of its market consultation on the "spread adjustment"...

United StatesFinance and Banking
Kim Desmarais
Kim Desmarais
Jason Jurgens
Jason Jurgens
Locke McMurray
Locke McMurray
Brian D. Trudgen
Brian D. Trudgen
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In Short

The Development: The Alternative Reference Rates Committee ("ARRC") announced the results of its market consultation on the "spread adjustment" calculation for the LIBOR/SOFR transition on May 6, 2020, but found it necessary to launch a second consultation in an effort to contain potentially excessive complexity entailed by the results.

The Significance: The need for the ARRC's second consultation highlights the potential trade-offs between simplicity and accuracy as the ARRC continues to assess a range of term structure constructs, including a true forward-looking risk-free rate.

Looking Ahead: Responses to the ARRC's second spread adjustment consultation are due June 8, 2020. We additionally expect further unexpected complexities to emerge as future decisions are made and applied to the range of risk-free rates under consideration by the ARRC.

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