ALTERNATIVE REFERENCE RATES COMMITTEE
Frequently Asked Questions
Version: August 27, 2021
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These Frequently Asked Questions were prepared by the Alternative Reference Rates Committee (ARRC) for use by
market participants and are current as of the version date noted above. This document will evolve as new developments
and questions arise. If you have a question to which you are seeking an answer, general ARRC inquiries can be
directed
to the ARRC Secretariat at [email protected]. The ARRC will endeavor to incorporate those topics below. Please also visit the ARRC’s website or sign up to receive alerts from the ARRC. Thank you.
ARRC
OVERVIEW
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1.
What is the ARRC and how have its key priorities evolved over time?
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2. Which organizations are members of the ARRC? .........................................................................................................................................
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SOFR OVERVIEW
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3.
What is SOFR, the ARRC’s recommended alternative to USD LIBOR?
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4.
What was involved in the ARRC’s process for selecting SOFR?
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5.
What makes SOFR the strongest alternative to USD LIBOR?
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6.
Who administers and produces SOFR and how is the rate production process reviewed?
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7.
What sort of financial products can reference forms of overnight SOFR?
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8.
Is it required that USD LIBOR-based products transition to SOFR specifically, and what tools are there to do so?
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9.
Who is being impacted by this transition from USD LIBOR to SOFR?
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10.
How does SOFR compare to other “IBOR” alternatives selected in other countries?
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11.
How practical is SOFR for use in financial contracts, in terms of its smoothness?
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SOFR TERM RATE
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12.
What is the status of a forward-looking SOFR term rate?
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13.
Why did the ARRC publish recommendations related to the scope of use of the SOFR Term Rate?
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14.
The ARRC stated that it supported the use of SOFR Term Rate derivatives for end -user facing derivatives intended to
hedge cash products that reference the SOFR Term Rate. For these purposes, what constitutes an end-user facing derivative
hedging a SOFR Term Rate cash product?
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15.
Does the ARRC’s recommendation of the SOFR Term Rate mean that it now
only
recommends use of SOFR Term Rates
in fallback language and does not recommend that other forms of SOFR be referenced as fallbacks in new or renegotiated
contracts referencing LIBOR? ...................................................................................................................................................................................
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16.
What relation do these ARRC recommendations have to supervisory expectations or CME licensing agreements for the
SOFR Term Rate?
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CONTRACT
LANGUAGE
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17.
What is “fallback language”?
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18.
What should market participants do to strengthen fallbacks in cash products?
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19.
What should market participants do to strengthen fallback language in derivatives?
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20.
What is the purpose of spread adjustments, and what spread adjustments are recommended for cash products and
derivatives?
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TRANSITION STATUS AND LATEST DEVELOPMENTS
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21.
When will USD LIBOR stop publishing?
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22.
How will legacy contracts be impacted by the March 5, 2021 USD LIBOR endgame announcements, and what is the plan
for contracts that mature after mid-2023?
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23.
How do the Q4 2020 announcements by regulators and IBA and the March 2021 announcements by the Federal Reserve
Board of Governors about USD LIBOR’s endgame impact the ARRC’s Recommended Best Practices?
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Updated on June 9, 2022 to reflect passage of federal LIBOR legislation.