LIBOR Discontinuation FAQs

LIBOR stands for the London Interbank Offered Rate. It's a variable interest rate based primarily on quotes for unsecured loans that large international banks would be willing to provide to each other. LIBOR is used globally as a reference rate in a wide variety of financial products and contracts.

The following are products that may have exposure to LIBOR:

• Securities-based lines of credit
• Adjustable-rate mortgages (ARMs)
• Margin loans
• Floating-rate bonds
• Shares of preferred securities
• Certain mutual funds
• Certain exchange-traded funds (ETFs)
• Certain exchange-traded notes (ETNs)

Financial companies are including statements regarding LIBOR exposure in their securities filings (e.g., Form 10-Ks).

LIBOR was historically based on quotes rather than actual transactions. In June 2012, multiple settlements by a prominent U.K. bank revealed significant fraud and collusion by member banks connected to the rate submissions. U.K. and U.S. regulators have determined LIBOR is no longer fit for its purpose and needs to be replaced because there are not enough actual transactions to support the volume of products and contracts that use LIBOR as a benchmark.

On Monday, November 30, 2020, U.S. and U.K. regulators and LIBOR’s administrator made a series of announcements about the end of LIBOR. Financial regulators encouraged financial institutions to stop entering into new contracts that use LIBOR as a reference rate as soon as practicable or by December 31, 2021, at the latest. They also supported June 30, 2023, as the date for LIBOR to be fully phased out.

The Federal Reserve's Alternative Reference Rates Committee (ARRC) has recommended the Secured Overnight Funding Rate (SOFR) as the preferred alternative to LIBOR. SOFR was chosen because its actual transactions average approximately $1 trillion a day (versus less than $1 billion a day for LIBOR).

While SOFR will be used for many types of products (e.g., derivatives and mortgages), alternatives may be used for other products. TD Ameritrade is carefully monitoring the situation and will ensure our products conform to accepted market practices.

The vast majority of TD Ameritrade clients do not have direct LIBOR exposure. Generally, you have exposure to LIBOR if you own a particular class of securities (e.g., floating-rate bonds or certain preferred securities) or have a loan with an interest rate tied to LIBOR (e.g., an ARM).

If you're investing in a product that references LIBOR, you should review the investment documentation (e.g., the prospectus of a bond fund). Generally, you should be able to find the investment documentation by searching the SEC's Edgar system. If you are unable to find the documentation or have additional questions, our contact information is provided below.

While we have seen many types of fallback language in contracts, most can be placed into one of two primary categories:

• The issuer, trustee, or calculating agent can choose an alternate reference rate (e.g., SOFR, Prime, or Fed Funds), or
• The security will remain floating rate utilizing the LIBOR Act.

The value of the investment could be impacted. You should carefully review the fallback langauge in the contract to determine if it is acceptable to you.

Money market funds: Yes, they may have exposure to LIBOR. However, they also have a short weighted-average life. So, as the market adopts alternative rates (e.g., SOFR), we expect money market funds to replace LIBOR-based assets with acceptable reference rates prior to the discontinuation of LIBOR. We do not recommend any specific action for money market funds.

Other funds: It depends. Many types of funds (e.g., mutual funds, ETFs, and ETNs) invest in underlying instruments with ties to LIBOR. Any fund could, in theory, invest in an instrument tied to LIBOR, but only certain types of funds have broad exposure. In general, we expect the issuers of mutual funds and ETFs exposed to LIBOR to transition their funds to SOFR-based products without any action needed from you. If you have specific concerns about your mutual fund or ETF investments, we suggest you reach out to your advisor, a TD Ameritrade representative, or the issuer of the mutual fund/ETF for more information.

Examples of funds exposed to LIBOR include, but are not limited to:

• Preferred securities
• Derivative-heavy funds
• REIT funds
• Bond funds
• Funds that hold bank stocks

Shares in equities, fixed-rate bonds, and most mutual funds and ETFs do not have direct exposure to LIBOR.

If your account is pledged as collateral, please contact your lender directly for information on their LIBOR transition plans.