45 days and counting until the final publication of a representative and compliant USD LIBOR!
The IBOR Transition Digest is a periodic compendium of global regulatory and market developments and insights on the complex issues confronting financial market participants as they continue to transition from LIBOR and its variants to replacement benchmark interest rates. As the market moves to the next phase of IBOR transition, 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.
SEC Exam Staff Issues LIBOR Transition Risk Alert for Investment Advisers and Investment Companies
In Brief, 15 May 2023
Two LIBOR transition practices that the SEC staff noted relate to other areas of recent regulatory focus for the SEC and its staff: oversight of service providers and conflicts of interest.
UK’s FCA Decision on Synthetic US Dollar LIBOR
In Brief, 5 April 2023
On 3 April 2023 the UK Financial Conduct Authority announced its decision to continue the publication of the 1-, 3- and 6-month USD LIBOR settings, using an unrepresentative ‘synthetic’ methodology, through 30 September 2024 for use in legacy LIBOR instruments only that do not fall within the scope of the Adjustable Interest Rate (LIBOR) Act.
United States – General
Observations from Examinations of Investment Advisers and Investment Companies Concerning LIBOR-Transition Preparedness
Securities and Exchange Commission Division of Examinations, 11 May 2023
The SEC noted that the preparation efforts and transition practices of the registered investment advisers and investment companies that were examined varied considerably, depending on the type and amount of LIBOR exposure. The SEC observed that firms have engaged actively with third party service providers to assess and manage exposure and communicate transition plans, and have considered conflicts of interest related to the transition as part of their assessment and planning, including cross-trading, principal transactions, allocation of transition costs, and clients with conflicting priorities.
LIBOR Transition: Joint Statement on Completing the LIBOR Transition – OCC Bulletin 2023-13
Office of the Comptroller of the Currency, Board of Governors of the Federal Reserve System, Consumer Financial Protection Bureau, Federal Deposit Insurance Corporation, National Credit Union Administration, and State Bank and Credit Union Regulators, 26 April 2023
The agencies expect institutions to have taken all necessary steps to prepare for an orderly transition away from LIBOR by 30 June 2023, including expeditious transition of remaining legacy contracts and selection of an appropriate alternative rate. They note that failure to adequately prepare for LIBOR discontinuance could “undermine financial stability and institutions’ safety and soundness and create litigation, operational, and consumer protection risks.”
CME Group, 25 April 2023
Summary and Update of the ARRC’s Term SOFR Scope of Use Best Practice Recommendations
Alternative Reference Rates Committee, 21 April 2023
Introducing an additional, limited recommendation permitting Term SOFR-SOFR basis swaps between dealers and non-dealer market participants, even if the market participant is not a direct party to a Term SOFR cash exposure. This refinement is intended to help ensure that “the cost of hedging is not prohibitively expensive or volatile in a way that shuts down the availability of Term SOFR hedging for Term SOFR business loans or for legacy LIBOR products that have fallen back to Term SOFR,” by giving dealers an additional means of offsetting the risk accumulated by offering term SOFR hedges to end users.
ARRC April 20 Meeting Readout
Alternative Reference Rates Committee Operations and Infrastructure Working Group, 20 April 2023
Noting that data from cash and derivatives markets show continued momentum in the transition away from LIBOR, with SOFR the predominant replacement across cash and derivatives markets. The group also approved the updated scope of use for Term SOFR.
ICE Benchmark Administration Provides Update on its Intention to Launch USD SOFR Spread-Adjusted ICE Swap Rate® as a Benchmark
Intercontinental Exchange, 13 April 2023
As an update to its 10 March announcement, ICE Benchmark Administration advised that it plans to launch USD SOFR Spread-Adjusted ICE Swap Rate® for use as a benchmark in financial contracts and financial instruments by licensees on 30 June 2023.
Canada – Derivatives
Canadian derivatives market hits milestone in transition from CDOR to CORRA
Bank of Canada, 25 April 2023
Reflecting the success of the CORRA-first initiative, the majority of maturity-weighted notional volume in cleared Canadian dollar interest rate derivatives were priced using CORRA instead of CDOR for two consecutive weeks, versus only 10% at the beginning of the year.
Canada – General
Creating an IOSCO compliant Term CORRA rate - CDOR Transition Webcast Series
Montreal Exchange, 3 May 2023
The fourth webcast of the series focuses on the need for a Term CORRA rate during the CDOR to CORRA transition.
CAD CDOR Fallbacks Fact Sheet
Bloomberg Professional Services, March 2023
Reviews the background, components, and calculation of Canadian fallbacks.
CARR publishes impact assessment checklist for market participants with CDOR exposure
Canadian Alternative Reference Rate Working Group, 28 March 2023
The Canadian Working Group published CDOR transition – Impact assessment checklist in which it provided factors to consider for the practical implementation of the new CORRA rate.
UK – General
The USD LIBOR panel ceases at end-June 2023: Are you ready?
Bank of England, 12 April 2023
Summarizing planned central counterparty conversion processes of outstanding USD LIBOR contracts to RFRs and reminding market participants that with the transition away from LIBOR in its final stages, credit sensitive rates should not emerge as successor rates as they are viewed as not robust or suitable for widespread use as a benchmark.
FCA announces decision on synthetic US dollar LIBOR
Financial Conduct Authority, 3 April 2023
The FCA announced that USD LIBOR would continue to be published on a non-representative, synthetic basis through 30 September 2024 for use in legacy non-cleared derivative contracts only, and issued ARTICLE 23A BENCHMARKS REGULATION – NOTICE OF DESIGNATION, ARTICLE 23C BENCHMARKS REGULATION – Draft Notice of Permitted Legacy Use By Supervised Entities, ARTICLE 23D BENCHMARKS REGULATION – Draft Notice of Requirements, and ARTICLE 21(3) BENCHMARKS REGULATION – Notice of First Decision in connection with the announcement. The FCA emphasized that “all new use of synthetic US dollar LIBOR will be prohibited under the Benchmarks Regulation,” and that the synthetic settings are intended for use in legacy contracts only, to help ensure an orderly wind-down of LIBOR.
Europe – Loans
Guidance for Corporate Lending Products for Implementing the Recommendations on EURIBOR Fallback Trigger Events and €STR-based EURIBOR Fallback Rates
Working Group on Euro Risk-Free Rates, 4 May 2023
While EURIBOR is not scheduled to be discontinued, market participants should include robust fallback language in their contracts, which is a requirement of the EU Benchmarks Regulation. The availability of forward-looking €STR rates allows the full implementation of the working group’s recommendations and conventions, particularly with respect to lending products.
Europe – General
Comparative Table of Available Term €STR Rates
Working Group on Euro Risk-Free Rates, 3 May 2023
An overview of the key features of the €STR-based forward-looking term structure.
Asia & Pacific Rim – General
Reform of interest rate benchmarks
Hong Kong Monetary Authority, 14 April 2023
A reminder to authorized institutions to help ensure that their corporate customers prepare on a timely basis for LIBOR transition. Two related publications—a LIBOR Cover Note for Corporate Treasurers and updated Transitioning away from LIBOR: Q&As for Corporate Treasurers—are provided.
Key Results of the Survey on the Use of LIBOR
Bank of Japan, 24 March 2023
Noting that almost 60% of surveyed financial institutions have no USD LIBOR exposure or have completed transition to alternative rates and that only a small number of contracts referencing synthetic JPY and GBP LIBOR remain outstanding. Supporting data is provided.
Global – Floating Rate Notes and Bonds
The author notes that the FCA decision on continuing publication of a synthetic USD LIBOR that is defined as CME Term SOFR plus the ISDA fixed spread adjustments should achieve the same result as the US approach under the LIBOR Act for as long as synthetic USD LIBOR continues to be published. But whereas there is no time limit under the LIBOR Act, synthetic USD LIBOR is subject to a time limit of a maximum of 10 years under the UK Benchmarks Regulation, with an annual review of whether synthetic USD LIBOR continues to be necessary in the meantime.
Global – Derivatives
ISDA Guidance - Bloomberg published Fallback Rates: Interaction between RFR publications, IBOR Fallback publications and the ISDA Definitions
International Swaps and Derivatives Association, 10 March 2023
Setting forth the methodology used by Bloomberg Index Services Limited for calculating fallback rates. Parties may choose to replicate BISL methodology and calculate the fallback rates themselves, however, under the ISDA Definitions the fallback rates that are published by BISL are binding.
Updating Term SOFR - ISDA DerivatiViews
International Swaps and Derivatives Association, 27 April 2023
Discussing the ARRC’s updated scope of use for Term SOFR and noting that the update introduces “another avenue for dealers to lay off their risk, while continuing to recommend that overall use of Term SOFR remains limited.”
Global – General
Transition to RFRs Review: First Quarter of 2023
International Swaps and Derivatives Association, 3 May 2023
The ISDA-Clarus RFR Adoption Indicator rose to a monthly average of 54.0% in the first quarter of 2023 compared to 51.7% in the fourth quarter of 2022, highlighting a continuing increase in global trading of specified risk-free rate-based derivatives.
FSB Statement to encourage final preparations for the USD LIBOR transition
Financial Stability Board, 27 April 2023
Encouraging an expeditious but orderly transition away from USD LIBOR before 30 June 2023, emphasizing the ongoing importance of using “robust reference rates that reflect deep, credible, and liquid underlying markets,” and cautioning against relying on the availability of synthetic LIBOR rates in place of active transition of legacy contracts.
Future Cessation Guidance – 2021 ISDA Interest Rate Derivatives Definitions and 2006 ISDA Definitions - IBA announcement of future permanent cessation of USD LIBOR ICE Swap Rate®
International Swaps and Derivatives Association, 28 November 2022 and updated 13 April 2023
Guidance for parties to over-the-counter derivative transactions that are affected by the November 2022 announcement of the future cessation of all tenors of the USD LIBOR ICE Swap Rate, and the related 2023 announcements relating to publication of a USD SOFR Spread-Adjusted ICE Swap Rate.
ISDA-Clarus March 2023 RFR Adoption Indicator
International Swaps and Derivatives Association, 11 April 2023
The ISDA-Clarus RFR Adoption Indicator rose again during March 2023, to a monthly average of 56.6%.
IOSCO Board Priorities – Work Program 2023-2024
International Organization of Securities Commissions, 5 April 2023
Among its priorities relating to supporting market effectiveness, IOSCO’s Task Force on Financial Benchmarks plans to look at “whether alternative benchmarks (specifically Credit Sensitive Rates and Term Secured Overnight Financing Rates), which claim to be based on active markets with high volumes of transactions, represent the underlying interest they intend to measure, are transparent in their design and are resilient during times of stress.”
Webinar: USD Libor Final Steps – Webcast and Presentation Materials
International Swaps and Derivatives Association, 13 April 2023
A review of ISDA definitions and calculation methodologies applicable to the transition from LIBOR to risk-free rates.
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.