US Libor panel to decide on seeking legislative relief from certain contracts

7 June 2019 3:23pm

6 June 2019. By Neil Roland.

A US Federal Reserve-sponsored Libor panel hopes to decide in the next few months whether to seek legislative relief from some existing contract requirements that are impeding a shift from the benchmark, said Tom Wipf, head of the Alternative Reference Rates Committee.

“There may be no solution for some of these products,” he said at a committee roundtable this week. “We need to be sure that the legal arguments are fully considered before deciding whether to take any steps.”

“The analysis is in its very early stages, and it is not yet ready for 'prime time,'” said Wipf, a Morgan Stanley vice chairman.

Consideration of an approach to the legislature of New York and possibly other states has generated interest from market participants in a bind about how to comply with regulators’ 2021 deadline.

“Obviously a legislative approach is something folks are wanting to hear more about in the future,” Sairah Burki, a senior director at the Structured Finance Industry Group, said at the roundtable.

Legacy cash products

The private-sector panel is focusing its discussion on existing, or legacy, cash products such as securitizations and floating rate notes, Wipf said.

Some securitizations are under contracts that won’t mature until the end of 2025, according to a report last year by the committee. These contracts reference Libor. To change the benchmark requires approval by 100 percent of the noteholders under most contracts.

“It’s impossible to identify who all your noteholders are,” Burki said.

Closed-door meetings

The committee has been discussing possible legislative relief for months behind closed doors, minutes of its meetings show.

It has hired New York-based law firm Cadwalader, Wickersham & Taft to “define the scope of any potential legislative relief efforts and the policy rationale for that scope,” minutes of the April meeting say.

The Fed-sponsored panel is overseeing the US transition to another interest-rate benchmark, Secured Overnight Financing Rates, with the goal of completing this shift by the end of 2021, when official support for scandal-plagued Libor will end.

Fintech Regulation in 2018