SEC raises expectations for public disclosures on LIBOR transition risks

September 20, 2019 Chatham Financial

On July 12, 2019, the U.S. Securities and Exchange Commission Staff (SEC staff) released a public statement encouraging entities to prepare for transition away from LIBOR and to provide disclosures about those transition plans and related risks. The SEC staff recommended that market participants expand their disclosures to include items such as the type and number of impacted instruments, the status of transition efforts to date, and related risks the entity will manage throughout the interim period. 

LIBOR is scheduled to cease at the end of 2021. In support of that timetable, the Chicago Mercantile Exchange and LCH.Clearnet will begin discounting cleared derivatives using the Secured Overnight Financing Rate (SOFR) during the second half of 2020. These changes will likely provide additional liquidity to the SOFR market and accelerate the transition from USD-LIBOR to SOFR.

The recent SEC public statement requested public companies to initiate or increase the specific disclosure of activities and risks related to their LIBOR transition activities. While FASB and IASB are working to minimize the accounting and financial reporting impact of the transition, market participants are encouraged to provide investors with candid disclosures addressing the status of remediation efforts to date, and financial and non-financial risks to be managed throughout the interim period. These disclosures will require new information and companies should initiate a LIBOR transition project, if one has not already begun. 

A summary of key messages from the public statement

Selected excerpts of commentary from SEC divisional units


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Transactions in over-the-counter derivatives (or “swaps”) have significant risks, including, but not limited to, substantial risk of loss. You should consult your own business, legal, tax and accounting advisers with respect to proposed swap transaction and you should refrain from entering into any swap transaction unless you have fully understood the terms and risks of the transaction, including the extent of your potential risk of loss. This material has been prepared by a sales or trading employee or agent of Chatham Hedging Advisors and could be deemed a solicitation for entering into a derivatives transaction. This material is not a research report prepared by Chatham Hedging Advisors. If you are not an experienced user of the derivatives markets, capable of making independent trading decisions, then you should not rely solely on this communication in making trading decisions. All rights reserved. 19-0244

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