In other news, CLS officials embrace change, DTCC & Ebix partner, and Grayscale taps BNY Mellon.
CFTC Says Firms Need to Embrace SOFR Soon
The CFTC wants participants in derivatives markets and the swap execution facilities (SEFs) to remember that they could face “financial, conduct, litigation, operational, and reputational risks” if they fail to adequately prepare for “a smooth and timely” London Inter-Bank Offered Rate (LIBOR) transition to the Secured Overnight Financing Rate (SOFR).
Two CFTC groups — the Market Participants Division and Division of Market Oversight — have jointly issued a statement that strongly discourages any adherence to LIBOR.
“As the timelines for the end of all LIBOR panels are now clear, the Divisions’ staff believe that continued reliance on LIBOR benchmarks poses risks to the stability and integrity of these markets and consumer protection,” according to the statement. “Therefore, the cessation of and transition away from LIBOR remains one of the Divisions’ significant regulatory priorities.”
The transition will require market participants to stop using LIBOR by the end of this year. “For this purpose, the use of LIBOR rates in new contracts should, with very limited exceptions, be ceased as soon as practicable and no later than December 31, 2021, to avoid these risks, according to the regulator.
“Further, market participants should accelerate their conversion of legacy LIBOR contracts and SEFs should continue to focus on efforts to build liquidity in alternative reference rates in their markets,” officials say. “The Divisions expect that these entities have been and will continue to keep their clients, participants, and stakeholders informed of developments in this area.”
The CFTC divisions point to the Financial Stability Board and its set of documents detailing recommendations that support the transitioning away from LIBOR [https://bit.ly/2VOUB5p].
In addition, the CFTC’s Market Risk Advisory Committee (MRAC) is recommending that the “CFTC adopt SOFR First as a best practice. SOFR First … is designed to help market participants decrease reliance on USD LIBOR,” officials say.
“The first three phases of SOFR First only apply to the interdealer market and the fourth, and final, phase applies more broadly. The first phase applies only to linear swaps and is recommended for July 26, 2021, with the additional phases applicable to other products expected to occur later this year,” according to the CFTC.
CLS Embraces FX Global Code Changes
Officials at CLS, a market infrastructure provider for FX settlement, processing and data solutions, report that they support changes to the FX Global Code because they “place greater emphasis on the use of payment-versus-payment (PvP) settlement mechanisms where available and provide more detailed guidance on the management of settlement risk where PvP settlement is not used.”
In particular, CLS pointed out the changes to the code that mitigate “FX settlement risk and best practice in post-trade processing:”:
- “Principle 35: strengthening the importance of PvP settlement to mitigate settlement risk where possible, and the use of automated settlement netting systems where it is not;”
- And “Principle 50: more detailed guidance on the measurement, monitoring and control of settlement risk where PvP settlement is not available, with a greater emphasis on the confirmation process of bilateral netting and the agreement of predetermined cut-off points.”
CLS is “working with the market to evaluate potential PvP solutions for currencies that are currently unable to settle in CLSSettlement. In late 2020, we established an industry working group and are actively exploring opportunities with the market to mitigate settlement risk further and unlock liquidity,” according to a statement from Marc Bayle de Jessé, CEO of CLS.
DTCC & Ebix Partner to Bolster Annuity Compliance
The DTCC is linking its Producer Management Portal (PMP) to the AnnuityNet platform of on-demand software and e-commerce services provider Ebix to offer an automated annuity compliance solution, officials say.
The partnership is intended to “significantly increase efficiency, reduce costs, and lower the risks associated with certifying agent compliance for annuity sales,” officials say.
The integration will enable Ebix to “send real-time messages to DTCC’s PMP platform as annuity orders are entered to ensure the agent has completed producer product training and licensing requirements,” officials say. “This automated process eliminates the reliance on manual touchpoints, including the need for broker dealers to review spreadsheets or paper documents to determine whether agents have the proper training and licenses.”
AnnuityNet platform users will have access to “PMP’s automated training certification process,” according to the DTCC. This will allow carriers and distributors to “share, track, and verify producer training completions on a single platform and as mandated by the National Association of Insurance Commissioners (NAIC).”
BNY Mellon to Service Grayscale Bitcoin Trust
Grayscale Investments has picked BNY Mellon as an asset servicing provider for Grayscale Bitcoin Trust, the flagship product of Grayscale Investments LLC, officials say.
“Through this agreement, BNY Mellon will provide Grayscale Bitcoin Trust with fund accounting and administration effective October 1, 2021. Additionally, it is anticipated that BNY Mellon will provide transfer agency and ETF Services for the Grayscale Bitcoin Trust upon its conversion to an ETF,” officials say.
Using BNY Mellon is part of the conversion of Grayscale Bitcoin Trust “into an ETF [exchange-traded fund],” says Michael Sonnenshein, CEO of Grayscale Investments, in a statement.
“Providing essential fund administration services to the world’s largest digital currency asset manager further validates that BNY Mellon stands squarely at the intersection of trust and innovation,” says Roman Regelman, CEO of Asset Servicing and head of digital at BNY Mellon.
Grayscale Investments describes itself as “the world’s largest digital currency asset manager, with more than $30B in assets under management as of July 9, 2021.”
Through its investment products, “Grayscale provides access and exposure to the digital currency asset class in the form of a security without the challenges of buying, storing, and safekeeping digital currencies directly,” officials add.