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ARTICLE · 04 AUGUST 2020

CFTC MRAC Approves Recommendations For CCP Discounting Transition

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The Subcommittee also offered specific recommendations for CCPs, futures commission merchants ("FCMs"), buy-side firms and regulators.

United StatesFinance and Banking
Hogan Lovells Cadwalader
Hogan Lovells Cadwalader
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The CFTC Market Risk Advisory Committee ("MRAC") approved recommendations for the scheduled October 2020 shift to the Secured Overnight Financing Rate ("SOFR") for central counterparties ("CCPs") discounting and price alignment interest at certain clearinghouses.

As previously covered, the MRAC Interest Rate Benchmark Reform Subcommittee (the "Subcommittee") held a "tabletop exercise" to consider CME and LCH's proposed approaches for transitioning discounting and price alignment interest for certain products to SOFR, scheduled for October 2020. Based on the exercise, the Subcommittee provided a series of broad "guiding insights" for market participants, including (1) enhanced education for "all involved parties," (2) risk mitigation strategies ahead of discounting, including trade compression and re-couponing, and (3) internal preparation and engagement by all impacted stakeholders.

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