On 16 February 2021, the Working Group on Sterling Risk-Free Reference Rates published a paper, ‘Supporting transition in sterling non-linear derivatives referencing GBP LIBOR ICE Swap Rate’.
The purpose of the paper is to document how the Non-Linear Derivatives Task Force (NLTF) has been considering the use of SONIA swap rates to develop a potential methodology for a replacement for the GBP LIBOR ICE Swap Rate (LIBOR ISR). The paper is intended to support market participants’ use of non-linear derivatives, structured products and cash market instruments that reference the GBP LIBOR ISR, in their efforts to meet the target milestones in the Working Group’s roadmap and priorities for 2021. The replacement formula described in the paper could be adapted to other markets where the discontinuation of the relevant ISRs is likely to trigger similar challenges. The Alternative Reference Rates Committee (ARRC) in the US has expressed an interest in this approach and, as a result, the NLTF on behalf of the Working Group and the ARRC have agreed to engage in an international collaboration aimed at addressing this topic amongst others.