01.05.2021

CFTC Permits FCMS To Use SOFR Investments

The Commodity Futures Trading Commission’s Market Participants Division issued temporary no-action relief to permit futures commission merchants 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).

The relief recognizes the increasing use of SOFR as an alternative reference rate to LIBOR in financial markets, and is consistent with previous CFTC staff relief issued to facilitate transition by market participants away from LIBOR.

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.  With this no-action relief, permitted investments may have SOFR-based adjustable rates of interest.

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

Source: CFTC

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