There can be no mistaking the regulatory message on LIBOR transition in recent weeks. A succession of letters, statements and reports, including those from the Financial Stability Board, the Commodity Futures Trading Commission (CFTC) and regulators at a recent Financial Stability Oversight Council meeting, all broadly made the same point: hurry up.

Little wonder. LIBOR will definitely, unequivocally end – and very soon. Under the timetable set by the UK Financial Conduct Authority, 30 LIBOR settings will either cease or become non-representative at the end of this year, just 169 days from now. While five of the most popular US dollar LIBOR settings will continue until mid-2023, multiple regulators have said they will restrict new use of US dollar LIBOR from the end of 2021, except in limited circumstances.

Fortunately, the implementation of robust fallbacks for derivatives earlier this year means the systemic risk posed by LIBOR ceasing or becoming non-representative before firms have fully transitioned their legacy books to alternative rates has been dramatically reduced. So far, more than 14,300 entities across nearly 90 jurisdictions have adhered to ISDA’s IBOR Fallbacks Protocol, which allows firms to incorporate the fallbacks into existing non-cleared derivatives. That protocol remains open for adherence, and I’d strongly encourage you to consider adhering if you haven’t already.

Even with fallbacks in place, though, firms still need to be ready to use alternative rates instead of LIBOR for new trades from the start of next year, including for US dollar. The good news is that liquidity in products referencing risk-free rates (RFRs) has been increasing over the past year. According to analysis by ISDA and Clarus, 11.7% of total cleared over-the-counter and exchange-traded interest rate derivatives DV01 was linked to RFRs in June, up from 4.9% in June 2020. But there’s clearly plenty of work still to do.

We expect the proportion of RFR-linked trades will continue to increase in the months leading up to the end-2021 deadline. The transition milestones set by regulators and the various national working groups will help in this regard. For example, the CFTC’s Market Risk Advisory Committee this month adopted a ‘SOFR first’ strategy, similar to the approach taken in some other LIBOR jurisdictions like the UK. Under this plan, trading conventions will switch from LIBOR to SOFR for linear US dollar swaps in the interdealer market from July 26, with non-linear derivatives, cross-currency swaps and exchange-traded derivatives following later in the year.

This will be an important moment and will help drive greater liquidity in SOFR, just as it has with certain other RFRs. But this won’t just happen on its own – financial and non-financial institutions need to get the systems and processes in place to start using products linked to RFRs. Many have already done this. Now is the time for others to follow suit.

Of course, we also recognize there will be instances when people may need to use a different benchmark. That might include situations where firms want to hedge a bond or loan that isn’t referenced to overnight RFRs. ISDA will include other rates and conventions within its standard definitions to support trading where there is sufficient demand from market participants for alternative benchmarks – we think it’s important to provide the market with the tools it needs to hedge as efficiently as possible.

Nonetheless, we continue to believe the vast majority of derivatives activity will center on overnight RFRs compounded in arrears. The fact that so many entities have adhered to ISDA’s IBOR Fallbacks Protocol, which will result in LIBOR exposures falling back to a spread-adjusted RFR compounded in arrears in the relevant currency following cessation or non-representativeness, means there is, in effect, trillions of dollars in RFR exposure already out there.

The key takeaway from the recent FSB progress report is that market participants need to act now. We agree. LIBOR is going to end, and it will end for most currencies very soon. It’s time to start using alternative rates.

Watch out for the third event in the Benchmark Strategies Forum, sponsored by CME, on September 15.