USD BSBY Cessation

Under circular number 4300 [1], LCH Limited (“LCH”) announced that its SwapClear service [2] would terminate all outstanding BSBY positions in a process scheduled to occur on 13 May 2024. Following consultation with affected SwapClear participants, LCH has decided not to proceed with this process on that date. This circular sets out the revised plans.

LCH has decided to exercise its powers under the SwapClear Procedures to determine an alternative rate for BSBY (“BSBY Alternative Rate”). LCH expects this BSBY Alternative Rate to be determined as a fixed spread to compounded SOFR using a methodology broadly consistent with that set out by ISDA in the context of LIBOR fallbacks. 

This will allow LCH to make use of available BSBY fixings provided by the administrator for BSBY (“BSBY Bloomberg Rate”) until LCH runs its termination process, which will be just ahead of the cessation date for the BSBY Bloomberg Rate. 

In addition, LCH proposes to use this fixed spread in its daily valuations of LCH’s BSBY positions at a date to be scheduled in the coming weeks. LCH will provide the finalised spreads described above and the implementation date for the valuation change in the coming weeks. 

While this approach and methodology has important advantages, LCH will still terminate its outstanding BSBY positions shortly before the cessation date for the BSBY Bloomberg Rate pursuant to its powers under the LCH rulebook and we confirm that LCH will not perform a conversion process. LCH will provide the termination date in the coming weeks. 

LCH continues to strongly encourage SwapClear participants to actively reduce and/or close out their exposures in relation to LCH BSBY positions. The proposed process described in this circular is subject to risk governance and legal and compliance review.

Should you have any comments or questions, or if you require further information, please do not hesitate to contact LCHSales@lseg.com.

[1] https://www.lch.com/membership/ltd-membership/ltd-member-updates/usd-bsby-cessation

[2] References to the SwapClear service, SwapClear Procedures and SwapClear participants includes the FCM SwapClear service, FCM SwapClear Procedures and FCM participants, respectively.