On 29 May 2020, the Bank of England updated its web page concerning the transition to sterling risk-free rates from LIBOR by adding a paper from the Working Group on Sterling Risk-Free Reference Rates (RFRWG) on the identification of tough legacy issues. Tough legacy contracts are considered to be those that do not have robust … Continue Reading
On 20 May 2020, the LMA published on its website a list of loans in the market which reference risk-free rates (RFRs). The LMA states that over the last year, bilateral and syndicated loans have been announced which reference the sterling (SONIA), US dollar (SOFR) and Swiss franc (SARON) RFRs, demonstrating an appetite among some … Continue Reading
The International Swaps and Derivatives Association (ISDA) has published a report summarising the final responses to its consultation process regarding including LIBOR pre-cessation fallbacks in derivatives that reference LIBOR. The results of the consultation indicate that a significant majority of respondents support including pre-cessation and permanent cessation fallbacks without optionality or flexibility in the amended … Continue Reading
On 7 May 2020, the Bank of England (BoE) published a market notice in relation to its approach to collateral referencing LIBOR for use in the Sterling Monetary Framework (May notice). In a previous market notice, issued on 26 February 2020, the BoE had announced that, from October 2020, it would increase haircuts progressively on … Continue Reading
The Prudential Regulation Authority (PRA) has published a statement today on the prioritisation of its work in light of the COVID-19 pandemic. The statement sets out further details of the Prudential Regulation Authority’s plans to help firms maintain their safety and soundness and deliver the critical functions they provide to the economy. Accordingly, the statement … Continue Reading
On 22 April 2020, the International Swaps and Derivatives Association (ISDA) published its Interest Rates Benchmarks Review for the first quarter of 2020. The ISDA Interest Rate Benchmarks Review analyses the trading volumes of interest rate derivatives (IRD) transactions in the US referencing the Secured Overnight Financing Rate (SOFR) and other selected alternative RFRs, including … Continue Reading
On 29 April 2020, the FCA issued a further statement on LIBOR reform referring to the joint statement that was made on 25 March that it remains the central assumption that firms cannot rely on LIBOR being published after the end of 2021. The FCA states that it recognises the challenges presented by the current … Continue Reading
On 23 April 2020, the International Swaps and Derivatives Association, Inc. (ISDA) and Bloomberg Index Services Limited (BISL) published an IBOR Fallback Rate Adjustments Rule Book, which sets out the methodology, rules and conventions that BISL will implement to calculate rate adjustments in derivative contracts in relation to the transition from inter-bank offered rates (IBORs) … Continue Reading
On 16 April 2019, ISDA announced the preliminary results of its consultation on the implementation of pre-cessation fallbacks for derivatives referencing LIBOR. The consultation, commenced in February 2020, invited feedback from market participants on whether a pre-cessation trigger should be included in ISDA standard documents in addition to the permanent cessation fallbacks that ISDA is … Continue Reading
The International Accounting Standards Board (IASB) has announced a consultation on proposed amendments to the International Financial Reporting Standards (IFRS) Standards to assist companies in providing useful information to investors about the effects of interest rate benchmark reform on financial statements. The IASB has split its work on interest rate benchmark reform on financial reporting … Continue Reading
The Working Group on Sterling Risk-Free Reference Rates (Working Group) has published a consultation paper for the sterling cash market (including loans, bonds, and securitisations) considering four methodologies that could be used to calculate the credit adjustment spread for fallbacks from GBP LIBOR to SONIA in cash products maturing beyond the end of 2021. The … Continue Reading
The European Central Banks’s working group on euro risk-free rates has published a factsheet on EONIA to €STR transition and a factsheet on understanding EURIBOR fallbacks. The EONIA to €STR transition factsheet provides background information on why the transition is happening, a timeline and some of the key issues arising from the transition, which include: … Continue Reading
Introduction On 26 February 2020, the Bank of England published a discussion paper Supporting Risk-Free Rate transition through the provisions of compounded SONIA, February 2020 (the Discussion Paper) which requested views from sterling market participants in relation to: the Bank of England’s intention to publish a daily SONIA Compounded Index; and the usefulness of the … Continue Reading
On 13 March 2020, the European Central Bank (ECB) working group on euro risk-free rates launched a public consultation on whether to issue recommendations to address specific issues for swaption products as a result of the proposed transition from EONIA to the euro short-term rate (€STR). The central counterparty (CCP) discounting switch from EONIA to … Continue Reading
On 12 March 2020, the FCA issued a statement on how it would announce LIBOR contractual triggers. The statement provides that: due to the agreement the FCA has with LIBOR panel banks to remain on the LIBOR panels until end 2021, the regulator does not expect LIBOR to cease or become non-representative before end 2021; … Continue Reading
On 10 March 2020, the Loans Enablers Task Force (the Task Force) of the Working Group on Sterling Risk-Free Reference Rates (the RFR Working Group) published an indicative roadmap outlining a path for the discontinuation of new GBP LIBOR-based cash lending by end-Q3 2020. This roadmap is intended to act as a guide for lenders, … Continue Reading
On 9 March 2020, the Bank of England (BoE) and the Financial Conduct Authority (FCA) published a letter that they had sent to trade associations regarding how the discontinuation of LIBOR might affect their members and stakeholders. The letter explains why LIBOR is ending, how this will affect trade associations and their members, the alternatives … Continue Reading
On 27 February 2020, the FCA published a Dear CEO letter to asset management firms concerning their preparations for the end of LIBOR. Key points in the Dear CEO letter include: asset managers should assume that LIBOR will cease after December 2021. Should an asset manager offer products or services that are exposed to or … Continue Reading
Last September, the LMA published Exposure Drafts of Compounded RFR Facilities Agreements by reference to SOFR and SONIA (being the chosen replacement near risk free rates for USD markets and LIBOR in the Sterling respectively), along with a commentary inviting market participants to consider various structuring issues (see earlier blog). The APLMA recently sought feedback from … Continue Reading
In September 2019, the Loan Market Association published exposure drafts of Compounded Risk Free Rate Facility Agreements by reference to SONIA and SOFR, being the chosen replacement near risk free rates for LIBOR in the Sterling and USD markets respectively together with commentary inviting market participants to consider various structuring issues which need to be … Continue Reading
On 6 February 2020, the International Swaps and Derivatives Association (ISDA) published an updated version of its FAQs on IBOR Fallback Rate Adjustments. The FAQs insert a new question and answer on whether fallbacks are “benchmarks” for regulatory purposes. ISDA responds to this question by stating: It is important to keep in mind that the … Continue Reading
On 24 January 2020, the FCA published a letter from Richard Fox, FCA Head of Markets Policy, to the International Swaps and Derivatives Association (ISDA) (dated 20 January 2020) explaining why market participants should not assume that any period of non-representative LIBOR based on reduced panel bank submissions would last for more than a short … Continue Reading
On 16 January 2020, the Working Group on Sterling Risk-Free Reference Rates (RFRWG) published a statement entitled “Progress on the transition of LIBOR – referencing legacy bonds to SONIA by way of consent solicitation“. In the statement, the RFRWG welcomes the consent solicitations that have already taken place or are underway to transition legacy bond … Continue Reading
On 16 January 2020, the Working Group on Sterling Risk-Free Reference Rates (RFRWG) published a paper on The use cases of benchmark rates: compounded in arrears, term rate and further alternatives. The paper is addressed to financial firms and non-financial end users, such as corporates, small to medium size enterprises, retail consumers and others, who … Continue Reading
