LCH’s plan for a one-step switch to SOFR discounting in H2 2020 is expected to help build liquidity in the SOFR swap market, but clarity on fallback language is needed for the market to thrive, according to Risk.net. The U.S. Treasury Department has said it will not allow banks to use swaps contracts as collateral if they are unable to sell them at an acceptable price.
LCH’s plan for a one-step switch to SOFR discounting in H2 2020 is expected to help build liquidity in the SOFR swap market, but clarity on fallback language is needed for the market to thrive, according to Risk.net. The London-based clearing house said in February that it will switch from Fed funds to SOFR for valuing cleared swaps and calculating variation margin on collateral on swaps.