WASHINGTON–A group that is being backed by the Federal Reserve said a “major milestone in the transition away from U.S. dollar (USD) LIBOR” has been accomplished via a formal recommendation for its replacement.
The Alternative Reference Rates Committee (ARRC), which is sponsored by the Fed and which developed the Secured Overnight Financing Rate (SOFR) as an alternative to U.S. dollars-based London Interbank Offered Rate (LIBOR), said its formal recommendation follows a “key change” in “interdealer trading conventions that were adopted” on July 26. That organization noted the change outlined loan conventions and use cases for how best to use the SOFR.
Federal Reserve Board Vice Chair for Supervision Randal Quarles said in a statement the formal recommendation will make it easier for firms to start using SOFR and move away from LIBOR, which will no longer be used for new contracts beginning Jan. 1, 2021, and will be discontinued for existing contracts after June 30, 2023.
“With this step, market participants now have every tool they need to transition from LIBOR,” said Quarles in the statement. “All firms should be moving quickly to meet our supervisory guidance advising them to end new use of LIBOR this year.”