LCH successfully completes transition to SOFR discounting

Report date
  • Over one million contracts transitioned with a total notional of $120 trillion 
  • Scope of transition included cleared interest rate swaps in SwapClear, deliverable and non-deliverable forwards and options in ForexClear, and cross-currency swaps in SwapAgent
  • LCH calculated and processed compensation payments for resulting valuation changes and created compensating swap hedges for risk changes
  • Client swap hedges totalling $24bn net notional successfully auctioned off at close to zero cost  
  • Auction very well-supported with 18 primary dealer banks submitting competitive bids

LCH, a leading global clearing house, today announced that it has successfully transitioned over one million cleared contracts from Fed Funds to SOFR discounting and Price Alignment Interest (PAI).

The move is an important component of industry-wide efforts to transition financial contracts from LIBOR to Risk Free Rates (RFR). The CCP discounting transition formed a key part of the Paced Transition Plan set in place by the ARRC (Alternative Reference Rates Committee) in 2018.  

As part of the transition, SwapClear and SwapAgent calculated and processed compensation amounts for all members and clients with relevant interest rate contracts to reduce the impact of the discounting change on portfolio valuations. SwapClear also provided risk-based compensation in the form of SOFR/FF basis swaps (‘Compensating swaps’) to mitigate the effect of risk changes caused by the discounting switch.

Client accounts were allowed to opt out of the compensating swaps and LCH ran an auction to sell off the net position in opted out swaps. The auction was very well-supported with 18 primary dealer banks submitting competitive bids. All six auctions were fully subscribed within 0.6bp of the mid-price. LCH was able to sell the entire portfolio of $24bn at close to zero liquidation cost.  

Susi de Verdelon, Head of SwapClear and Listed Rates, LCH Ltd said: “We are extremely pleased to have completed a smooth transition for cleared swaps. This has been a truly cross-industry effort and would like to thank all the clearing members and clients who have contributed to making this a success.”  

David Horner, Head of Risk, Rates Derivatives, LCH Ltd said: “The SOFR discounting transition has been in the works at LCH since we first launched the cleared swap product 2 years ago.  It is great to be able to complete such a fundamental change across SwapClear, ForexClear and SwapAgent and move those markets into the next paradigm.  The strong support we received from the dealer banks on the auction was much appreciated.”

Tom Wipf, Chairman of ARRC said: “The CCP discounting conversion is a huge milestone in the overall LIBOR transition.  We expect this to be the catalyst for a step-change in trading volumes in SOFR derivatives, bringing a transition in the broader market much closer.” 

The transition applied to all SwapClear contracts denominated in USD, MXN, INR, CNY, KRW, COP, CLP, BRL, TWD, THB (10 currencies); non-deliverable and deliverable FX forwards and options in the ForexClear service; and to all cross-currency swaps registered in the LCH SwapAgent service, bringing efficiencies (in the case of SwapAgent) to bilateral markets traditionally associated with centrally cleared products.

To view the SOFR Discounting Transition Auction results, please click here.

For further information
Rhiannon Davies / Christopher Loscher, Tel: +44 (0)20 7797 1222

Notes to editors
SOFR is the Secured Overnight Financing Rate, the agreed RFR for the USD market

ARRC is the Alternative Reference Rates Committee, the working group convened by the Federal Reserve with the aim of coordinating a transition from LIBOR

PAI is Price Alignment Interest, the compensating rate of interest paid on cleared swap balances

About LCH

LCH is a group of leading multi-asset clearing houses that provides proven risk management capabilities across a range of asset classes. As demand for robust clearing services continues to grow, LCH is committed to maintaining the highest standards of risk management across all our services. 
As the markets’ partner, LCH operates an open access model, offering a choice of execution venues, delivering unprecedented choice and efficiencies to the marketplace. 

LCH operates clearing houses around the world, with clearing houses incorporated in the UK and  France and with offices in the United States and the Asia Pacific region. It offers clearing services across asset classes including OTC and listed rates; CDS and FX; fixed income; commodities; cash equities and equity derivatives. LCH also serves the non-cleared derivatives market through LCH SwapAgent, a new service which extends the efficiencies and infrastructure of clearing to the market, without acting as a central counterparty. 

LCH is majority owned by London Stock Exchange Group (LSE.L), an international markets infrastructure business that sits at the heart of the world's financial community.

Further information on LCH can be found at