Identifying benchmark rates based on the Secured Overnight Financing Rate (SOFR) that will replace LIBOR (formerly known as the London Interbank Offered Rate) in certain financial contracts after June 30, 2023 is the aim of a final rule released by the Federal Reserve Friday.
The final rule takes effect 30 days after publication in the Federal Register.
The rule, the agency said, is substantially similar to the proposal issued in July. As required by law, it identifies replacement benchmark rates based on SOFR to replace overnight, one-month, three-month, six-month, and 12-month LIBOR in contracts subject to the law. These contracts include U.S. contracts that do not mature before LIBOR ends and that lack adequate “fallback” provisions that would replace LIBOR with a practicable replacement benchmark rate.
The Fed said that, in response to comments, the final rule restates safe harbor protections contained in the LIBOR Act for selection or use of the replacement benchmark rate selected by the Fed Board, and clarifies who would be considered a “determining person” able to choose to use the replacement benchmark rate selected by the Board for use for certain LIBOR contracts.
“Consistent with the LIBOR Act, the final rule also ensures that LIBOR contracts adopting a benchmark rate selected by the Board will not be interrupted or terminated following LIBOR’s replacement,” the Fed added.