On January 4, the Commodity Futures Trading Commission’s (CFTC) Market Participants Division (MPD) issued Staff Letter 21-02 providing temporary no-action relief to permit futures commission merchants (FCM) to invest customer funds in investments that have adjustable rates of interest that correlate closely with, or are determined solely by reference to, a benchmark of the Secured Overnight Financing Rate (SOFR), recognizing the increasing use of SOFR as an alternative reference rate to LIBOR in financial markets.

CFTC Regulation 1.25 provides that the adjustable rate of interest on permitted investments must be benchmarked to the Federal Funds target or effective rate, the prime rate, the three-month Treasury Bill rate, the one-month or three-month LIBOR rate, or the interest rate of any fixed rate instrument that is a permitted investment. Staff Letter 21-02 states that MPD staff will not recommend enforcement action to the CFTC if an FCM invests customer funds in permitted investments that contain an adjustable rate of interest that is benchmarked to SOFR.

The no-action relief expires on December 31, 2022.

The press release and access to Staff Letter 21-02 are available here.