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My relationship with LIBOR goes way back. In one of my finance jobs before I became a lawyer, I was tasked with retrieving the LIBOR rate from the Bloomberg terminal each day as soon as it was published. At that time, LIBOR was set by the British Bankers’ Association, a group that I envisioned being right out of the movie Mary Poppins, with black suits and Bowler hats. I recall that the rate would be published each day at around 11:00 am London time, and there was an urgent need to accurately capture the U.S. dollar LIBOR rate and reflect it in the various instruments that were priced based on LIBOR. In the days before the Internet, the Bloomberg terminal was the only place to get the LIBOR rate in real time, and we only had one extremely expensive Bloomberg terminal in the financial institution. While it no doubt seemed like a menial task at the time, I recall feeling an enormous sense of responsibility given that I needed to retrieve the rate as soon as it was published and communicate it accurately to the finance team.

It seems that the LIBOR transition has been going on forever, but now the transition is rapidly concluding, as issuers, financial institutions and others announce the imminent migration from LIBOR to, in many cases, the Secured Overnight Financing Rate (SOFR). The transition has taken so long that many may not even recall why we moved away from LIBOR – as this article notes, beginning in 2012, an investigation revealed that several large banks were colluding to manipulate LIBOR for a profit going back to 2003. Now, two decades after the scandal reportedly began, LIBOR is finally going the way of the dinosaur.

Yesterday, the SEC’s Office of Investor Education and Advocacy released a new Investor Bulletin focused on the LIBOR transition. The bulletin notes:

In recent years, however, U.S.-dollar LIBOR is being phased out in response to concerns that the benchmark was being manipulated. The publication for one-week and two-month U.S.-dollar LIBOR ceased at the end of 2021. The remaining tenors of U.S.-dollar LIBOR are scheduled to cease publication after June 30, 2023.

The end of LIBOR has precipitated the need for an alternative benchmark rate. In March 2022, Congress enacted the Adjustable Interest Rate (LIBOR) Act. This Act provides a process and protections for transitioning to an alternative rate in contracts with terms that do not provide for a clear transition. The Federal Reserve Board adopted a final rule in December 2022 implementing the LIBOR Act and specified benchmarks based on the Secured Overnight Financing Rate (SOFR) as the replacement rates.

The bulletin goes on to note the various securities, financial instruments or financial products that have exposure to LIBOR and how they will be affected by the transition to a new rate.

– Dave Lynn