Legal development

Spread Adjusted USD SOFR ICE Swap Rate To Be Available from 3 July 2023

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    On 10 March 2023, ICE Benchmark Administration (IBA) announced that, subject to continued satisfactory testing and feedback, its spread-adjusted USD SOFR ICE Swap Rate would be available for use by licensed market participants in financial contracts and instruments from 3 July 2023, the first business day after the discontinuation of IBA's USD LIBOR ICE Swap Rate on 30 June 20231.In response to market feedback, the date was subsequently brought forward to 30 June 2023.

    The spread-adjusted USD SOFR ICE Swap Rate is calculated according to the same methodology as the fallback formula proposed by the Alternative Replacement Rates Committee (ARRC) for the USD LIBOR ICE Swap Rate. Therefore, market participants may wish to directly apply the spread-adjusted USD SOFR ICE Swap Rate rather than having to calculate the fallback formula themselves.

    ARRC-recommended formula

    In its Recommendations for Contracts Linked to the USD LIBOR ICE Swap Rate, the ARRC recommended a fallback formula to replace USD LIBOR ICE Swap Rate in financial contracts and instruments. The formula comprises:

    • the sum of:
      • the USD SOFR ICE Swap Rate (also referred to as the USD SOFR CMS2  rate); plus
      • a spread adjustment of 0.26161 per cent. (being the ISDA fallback spread adjustment for 3-month USD LIBOR),
    • subject to, certain technical adjustments to account for differences in payment frequency and day count conventions between USD LIBOR swaps and USD SOFR swaps,

    and is set out in full as follows:


    • "SOFR ISR" means the USD SOFR ICE Swap Rate for the same tenor as the USD LIBOR ICE Swap Rate being replaced; and
    • "ISDA Spread (3m LIBOR)" means 26.161 basis points, or 0.26161 per cent.

    The rate has been published in indicative "beta" form since October 2021 but its use in financial contracts and instruments has to date been expressly prohibited by IBA.

    The USD SOFR ICE Swap Rate on which the spread-adjusted rate is based has been published since October 2021 and available for use in financial contracts and instruments since November 2021.

    The spread-adjusted rate is expected to be published for the same tenors as the USD LIBOR ICE Swap Rate.

    USD LIBOR ICE Swap Rate and fallback rates

    In March 2021, the UK's Financial Conduct Authority announced that all USD LIBOR tenors would either be discontinued or cease to be representative from 30 June 2023 at the latest. IBA subsequently announced that the lack of underlying LIBOR data would prevent it from calculating its widely-used USD LIBOR ICE Swap Rate after such date. This means that legacy financial contracts and instruments that reference the USD LIBOR ICE Swap Rate and mature after 30 June 2023 will need to reference a replacement rate after such date.

    Many such instruments incorporate specific fallback provisions to cater for rate discontinuation. For example, derivative contracts that reference either the 2006 ISDA Definitions (including Supplement 88 thereto) or the 2021 ISDA Interest Rate Derivatives Definitions will fall back to the rate described above. Structured notes that provide for the calculation agent to select a replacement rate at its discretion are also likely to fall back to the above rate, given that any such selection will be heavily influenced by the ARRC recommendation. Exercise of any such discretion would be further supported by the ARRC's recommendation that, for tough legacy contracts with fallback provisions that require calculation agent determination, "calculation agents consider the fallback formula that it has suggested in determining a successor rate".

    In all cases, the ability to use a "pre-prepared", published version of the spread-adjusted fallback rate will significantly reduce the burden on calculating parties and the possibility of human error-driven inconsistency, which will in turn increase market confidence in the rate and reduce the risk of disputes.

    For more information, see our LIBOR Transition Hub.


    1. The final publication date for the USD LIBOR ICE Swap Rate was Friday, 30 June 2023.

    2. Constant Maturity Swap. The rate represents the fixed rate for entering into a fixed-to-floating interest rate swap under which the floating leg references 3-month USD LIBOR.

    The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
    Readers should take legal advice before applying it to specific issues or transactions.


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