Welcome to the latest issue of Mayer Brown’s IBOR Transition Digest—a periodic compendium of global regulatory and market developments and insights on the complex issues confronting financial market participants as they plan to transition from LIBOR and its variants to replacement benchmark interest rates. As attention to IBORtransition accelerates and becomes more focused, it is critical to have access to comprehensive and timely resources about the market.
For additional resources and an introduction to our global cross-practice IBOR Transition Task Force, please visit Mayer Brown’s IBOR Transition portal.
Thought Leadership | News and Developments | Events
Voting With or Dragging Their Feet (Depending on Your Viewpoint): US Loan Markets Continue to Show Interest in Credit-Sensitive Alternatives to SOFR
Eye on IBOR Transition blog, 29 July 2021
We continue to observe credit agreements in the US loan markets that use a credit-sensitive alternative rate (CSR) to SOFR. In fact, a recent check of public filings showed eight reported credit agreements that used a CSR, specifically the Bloomberg Short-Term Bank Yield Index (BSBY).
It’s Here! The ARRC Formally Recommends CME Group’s SOFR Term Rate
Eye on IBOR Transition blog, 29 July 2021
On 29 July 2021, the Alternative Reference Rates Committee formally recommended the forward-looking SOFR term rates published by CME Group for use in business loans, as well as the related hedges and securitizations (notably for CLOs).
United States – Syndicated and Bilateral Loans
Fallbacks: Report from the Institutional Loan Trenches
Loan Syndications & Trading Association, 26 July 2021
Reporting on the steadily increasing momentum of the usage of hardwired fallbacks.
United States – Derivatives
CME Term SOFR will be available in the near future for use in OTC derivatives in alignment with ARRC
CME Group, 22 July 2021
Use of CME Term SOFR will be expanded to include specified end-user facing derivatives and securitizations.
United States – General
House Passes Legislation to Advance Investor Protections, Support Manufactured Housing Committees, and Promote De Novo Depository Institutions
U.S. House Committee on Financial Services, 30 July 2021
Includes passage by voice vote of the Adjustable Interest Rate (LIBOR) Act of 2021.
ARRC Formally Recommends Term SOFR – Announcement Completes the Toolkit that Market Participants Need to Accelerate Their Transition Away from LIBOR
Alternative Reference Rates Committee, 29 July 2021
Based on the success of “SOFR First” and the growing SOFR cash and derivatives markets, the ARRC formally recommended CME Group’s SOFR term rate for use in business loans and related hedges and securitizations.
Factsheet - ARRC Formally Recommends a Forward-Looking SOFR Term Rate
Alternative Reference Rates Committee, 29 July 2021
Summarizing key transition steps to date, upcoming milestones, and the strengths of SOFR.
OCC Bulletin 2021-32 – LIBOR Transition: Regulatory Capital Frequently Asked Questions
Office of the Comptroller of the Currency, 29 July 2021
SR 21-12 – Answers to Frequently Asked Questions on the Transition Away from the London Interbank Offered Rate (LIBOR)
Board of Governors of the Federal Reserve System, 29 July 2021
FIL-54-2021 – Answers to Frequently Asked Questions about the Impact of London Interbank Offered Rate (LIBOR) Transitions on Regulatory Capital Instruments
Federal Deposit Insurance Corporation, 29 July 2021
In virtually identical releases, the OCC, Federal Reserve, and FDIC clarified that the amendment of a capital instrument for the sole purpose of replacing a LIBOR-linked interest rate will not be considered to be the issuance of a new instrument for purposes of the capital rule nor the creation of an incentive to redeem.
Term SOFR: Formally Recommended!
Loan Syndications & Trading Association, 29 July 2021
Announcing the approved term rate and outlining the various key steps leading to the announcement.
Updated Draft – Adjustable Interest Rate (LIBOR) Act of 2021
U.S. House of Representatives, 27 July 2021
The current draft was presented to the full Committee on Financial Services on 28 July for review and revision.
Update on Upcoming Formal Recommendation of Term SOFR – Latest Status of Formal Recommendation, Following Today’s Convention Switch of USD Linear Swap Trading from USD LIBOR to SOFR
Alternative Reference Rates Committee, 26 July 2021
ARRC Chairman Tom Wipf stated that if the momentum of the 26 July interdealer swaps pricing convention switch continues to be positive, the ARRC expects to recommend the CME SOFR Term Rates “very soon.”
LSTA Podcast: Term SOFR in Scope for Business Loans & CLOs
Loan Syndications & Trading Association, 26 July 2021
Providing key takeaways from the ARRC’s term SOFR resources published on 21 July 2021.
In Focus: The LIBOR Transition
Congressional Research Service, 26 July 2021
An overview of LIBOR, SOFR, and transition progress and its effect on financial stability.
Canada – General
Results of consultation on CORRA-in-arrears calculation methodology and CDOR fallback language for Floating Rate Notes
Canadian Alternative Reference Rate Working Group, 6 July 2021
Summarizing the responses from 14 respondents to CORRA-in-arrears calculation methodology proposed in the working group’s November consultation. Additional LIBOR/CDOR transition resources can be accessed on the Canadian Alternative Reference Rate Working Group web page.
Letter to federally regulated financial institutions (FRFIs) re transition from LIBOR
Office of the Superintendent of Financial Institutions, 22 June 2021
FRFIs should cease new LIBOR issuances by 31 December 2021, ensure that any new USD LIBOR-linked contracts executed prior to year-end contain robust fallback language, and be prepared for transition preparedness to be a focus of supervisory assessments.
United Kingdom – General
Standard on Use of Term SONIA Reference Rates
FICC Markets Standards Board, 28 July 2021
In response to its March 2021 consultation, the FICC Markets Standards Board has finalized a standard to identify when term SONIA reference rates might be used for various financial transactions and setting out “expected behaviours” of market participants when issuing term SONIA products.
Europe – Derivatives
Recommendations from the Working Group on Euro Risk-Free Rates on the switch to risk free rates in the interdealer market
European RFR Working Group, 15 July 2021
Recommending an “€STR First” initiative and supporting an “RFR First” initiative, both of which are consistent with the working group’s mandate of transitioning away from EONIA in a way that is coordinated with other global transition working groups.
Consultation Paper on the clearing and derivative trading obligations in view of the benchmark transition
European Securities and Markets Authority, 9 July 2021
Seeking feedback on the proposed changes to the scope of clearing and trading obligations relating the transition of OTC derivatives to RFRs, and to related regulatory technical standards.
Europe – General
Further Updated Q&A on the Benchmarks Regulation
European RFR Working Group, 29 July 2021
Adding guidance relating to the use of benchmarks provided by public authorities located in non-EU countries.
Asia and Pacific Rim – Derivatives
Transition of Quoting Conventions in the JPY interest rate swaps market (“TONA First”)
Bank of Japan, 26 July 2021
Recommending the dates on which various types of interest rate swap quoting conventions should change from JPY LIBOR to TONAR.
Asia and Pacific Rim – General
Media Release: Recommendations for Transition of Legacy SOR Contracts
Association of Banks in Singapore, 29 July 2021
Summarizing the key points in the report, Recommendations for Transition of Legacy SOR Contracts, published on 29 July 2021 and supported by the Monetary Authority of Singapore.
Global – General
ISDA, NAFMII Publish Chinese Language IBOR Fallbacks Documents
International Swaps and Derivatives Association, 30 July 2021
Based on ISDA’s 2020 IBOR Protocol and Supplement No. 70, ISDA and the National Association of Financial Market Institutional Investors have published an IBOR Fallbacks Supplemental Agreement and related IBOR Fallbacks Booklet for China Interbank Market Financial Derivatives Transactions. These documents will enable onshore market participants in China to OTC interest rate derivatives transactions in specified IBOR currencies, which are documented under the 2009 NAFMII Master Agreement and not subject to the ISDA IBOR Protocol and Supplement, to incorporate contractual fallbacks into their contracts.
ISDA Announces Results of Consultation on Fallbacks for GBP LIBOR ICE Swap Rate and USD LIBOR ICE Swap Rate
International Swaps and Derivatives Association, 23 July 2021
A “significant majority” of respondents agree with the fallbacks proposed by the Non-Linear Task Force of the Sterling Working Group and of a subcommittee of the ARRC.
ISDA Introduces New Benchmark Reform and Transition from LIBOR InfoHub
International Swaps and Derivatives Association, 19 July 2021
Newly redesigned but still ISDA’s central repository of information on LIBOR transition from ISDA.
The LIBOR End Game – informal remarks by CEO Scott O’Malia
International Swaps and Derivatives Association, 15 July 2021
A succession of regulatory letters, statements, and reports all broadly made the same point: hurry up!
Replays of all of our IBOR Transition Webinar Series presentations are available via iTunes podcasts, Google play or Spotify, as well as on the IBOR Transition Webinar Series page of our dedicated IBOR Transition portal.
