A financial technology firm has announced its successful completion of multilateral exercises aimed at transitioning legacy USD LIBOR-referenced swaptions to vanilla SOFR replacements for a network of 17 global dealers. The process involved nine live executions, allowing the firm, along with Capitalab—its recently acquired subsidiary—to facilitate the multilateral switching of over 17,000 legacy LIBOR swaptions.
This transition addresses significant operational challenges linked to expiry management that participants faced while dealing with legacy LIBOR products. Issues around the pricing of these swaptions became particularly pronounced in 2020 when major clearinghouses moved from Fed Funds to SOFR for USD swaps, resulting in complexities within the swaption market. Further complicating matters, a prominent clearinghouse announced a cessation of support for the clearing of exercised legacy LIBOR swaptions as of June 30, 2025, which led to increased operational strains for market participants.
In response to these rising concerns regarding the remaining LIBOR swaption inventory, the firm engaged closely with the dealer community to create a solution that could scale effectively. In a remarkably short timeframe of two months, it initiated a proof-of-concept run that involved nine dealers. Following this, nine successful multilateral runs took place, collectively transitioning a large volume of trades and leaving participants with a clearer and simpler inventory of vanilla SOFR swaptions. This outcome significantly mitigates ongoing operational risks and complexities.
A notable representative from the firm remarked that this initiative showcases the strength of industry collaboration and the efficacy of innovative solutions to address real challenges. The transition of such a considerable volume of trades underscores the trust that clients place in the firm, reflecting their dedication to progress and willingness to collaborate in achieving a systemic shift.
With the completion of this transition, the majority of market participants report having few LIBOR swaptions left. The firm is also ready to conduct additional cycles on an ad-hoc basis as demand continues to develop.