In 2017, the United Kingdom’s Financial Conduct Authority (FCA), the regulator that oversees the panel of banks on whose submissions LIBOR is based, announced plans to discontinue LIBOR after 2021. The FCA subsequently announced that no LIBOR indices will be available after June 30, 2023. In anticipation of the elimination of LIBOR, the Federal Reserve Board and the Federal Reserve Bank of New York (FRBNY) convened the Alternative Reference Rates Committee (ARRC) to identify alternative indices to replace LIBOR. In 2019, the FRBNY began publishing a new Secured Overnight Financing Rate (SOFR) index and the ARRC subsequently recommended the use of SOFR to replace LIBOR.
While much already has been done to effect a transition from LIBOR to SOFR, there are still a significant amount of challenging legacy contracts, and the ARRC remains concerned about an operational Armageddon occurring on June 30, 2023. In particular, the ARRC notes that approximately $5 trillion of post-June 30, 2023, LIBOR exposures are in cash products such as loans and securities and will need to be converted on or about June 30 next year, along with approximately $74 trillion in derivatives. The Playbook is designed to both reduce the number of LIBOR contracts outstanding on the conversion date and to help businesses to operationally prepare for conversion.
For more information about the Playbook, see Ballard Spahr’s legal alert.