Consultation on transition to SOFR discounting

Report date

Circular No.

LCH Circular No 3984


6 November 2018


All SwapClear Users


Today LCH is launching a consultation on the transition of discounting in the USD swaps market from Fed Funds to SOFR.  In the consultation document, available to members and their clients on the LCH secure area here, we provide details of how LCH is approaching the transition and describe the different options in detail.  We provide a summary of the benefits and challenges associated with each approach and seek feedback from our members and their clients on how we should best go forward with the next steps of the plan.

Specifically, we are asking SwapClear users to express an opinion on whether LCH should support a transitional phase in which SOFR-discounted USD trades co-exist with existing Fed Funds-discounted trades (‘Dual Discounting as Proposed in the Paced Transition Plan’), or whether LCH should preserve the single discounting environment for USD swaps and, at the appropriate time, run a process to convert all existing Fed Funds-discounted trades to SOFR (‘Single-step Approach including Conversion of Legacy Book’).  We also seek feedback on whether compensation payments are necessary or desirable in a conversion process and the best timing of the agreed next steps.

These are necessary steps towards responding to the market’s transition to SOFR as an alternative to LIBOR in the USD interest rates market.  The ultimate solution will be implemented consistently across the entire LCH cleared USD trade population (the choice cannot be provided to each user individually).  Therefore users are strongly encouraged to express their preferences regarding the transition approach in order that LCH can reach a decision that best addresses the feedback from the market.  

Please reply to by 14th December 2018 if you would like to take the on-line survey and we will send you a link (any responses received after this date may not be considered).  Responses will be kept confidential and will be considered by LCH in determining which approach should be adopted.  Please contact your usual LCH relationship manager if you require access to the secure area.

We very much appreciate your engagement on these critical decisions.