On 9 December 2021, the European Securities and Markets Authority (ESMA) published a statement from the EUR Risk Free Rates Working Group (Working Group), regarding part II of the Risk-Free Rate (RFR) First initiative for cross currency swaps from the Commodity Futures Trading Commission (CFTC) Market Risk Advisory Committee, which was published on 2 December. This recommends adopting Secured Overnight Financing Rate (SOFR) instead of USD LIBOR in all new cross currency swaps activity with a USD LIBOR leg in the interdealer market from 13 December 2021.

The Working Group supports this initiative, recommends alignment with part II in EU interdealer cross currency swap markets, and recognises that this helps market participants to meet the target of ceasing new use of USD LIBOR as of the end of 2021 (except for certain risk management exceptions) per guidance from US and UK authorities.  They also recommend the adoption of euro short-term rate (€STR) for the EUR leg of EUR vs USD cross currency swaps in the EU interdealer market as of 13th December 2021.

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