April 11, 2021

Volume XI, Number 101

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April 09, 2021

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April 08, 2021

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CFTC Staff Provides Temporary Relief to Futures Commission Merchants Regarding Certain SOFR-Linked Investments

On January 4, the Commodity Futures Trading Commission’s (CFTC) Market Participants Division (MPD) issued Staff Letter 21-02 providing temporary no-action relief to permit futures commission merchants (FCM) to invest customer funds in investments that have adjustable rates of interest that correlate closely with, or are determined solely by reference to, a benchmark of the Secured Overnight Financing Rate (SOFR), recognizing the increasing use of SOFR as an alternative reference rate to LIBOR in financial markets.

CFTC Regulation 1.25 provides that the adjustable rate of interest on permitted investments must be benchmarked to the Federal Funds target or effective rate, the prime rate, the three-month Treasury Bill rate, the one-month or three-month LIBOR rate, or the interest rate of any fixed rate instrument that is a permitted investment. Staff Letter 21-02 states that MPD staff will not recommend enforcement action to the CFTC if an FCM invests customer funds in permitted investments that contain an adjustable rate of interest that is benchmarked to SOFR.

The no-action relief expires on December 31, 2022.

The press release and access to Staff Letter 21-02 are available here.

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©2021 Katten Muchin Rosenman LLPNational Law Review, Volume XI, Number 8
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About this Author

Kevin M. Foley, Finance Lawyer, Katten Llaw Firm
Partner

Kevin M. Foley has extensive experience in commodities law and advises a wide range of clients, both in the United States and abroad, on compliance with the Commodity Exchange Act and the rules of the Commodity Futures Trading Commission (CFTC) affecting traditional exchange-traded products, as well as the over-the-counter markets involving swaps and other derivative instruments. His clients include futures commission merchants, derivatives clearing organizations, designated contract markets, foreign boards of trade and an industry trade association.

...

312-902-5372
Jack West Financial Attorney Katten
Associate

Jack West is an associate in the Financial Markets and Funds practice.

312-902-5463
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