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 IBOR transition 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.
Third Meeting of US Credit Sensitivity Group Examines Possible Design and Data Sources for a More Credit-Sensitive Spread Adjustment
In Brief, 9 September 2020
The Credit Sensitivity Group—market participants convened by the New York Federal Reserve Bank and the Federal Reserve Board to support the ARRC’s IBOR transition work—met for a third time on August 12. Discussion focused on the design of a credit spread adjustment and the appropriate data source to build such an adjustment.
NEWS AND DEVELOPMENTS
United States – Syndicated and Bilateral Loans
Updated ARRC Recommended Best Practices for Completing the Transition from LIBOR and Updated Best Practices Fact Sheet
ARRC, 3 September 2020
ARRC updated its May 2020 recommended Best Practices to clarify the timelines and interim milestones that the ARRC believes are appropriate for transitioning away from USD LIBOR in a way that will minimize market disruption and support a smooth transition through the broad voluntary adoption of the SOFR. The refreshed Best Practices also reflect the updated bilateral business loan fallback language recommendations issued on 27 August.
RFP for Vendor to Publish ARRC-Recommended LIBOR Fallback Spread Adjustments and Spread-Adjusted Rates
ARRC, 2 September 2020
The ARRC is seeking one or more firms to publish daily indicative spreads and, after a trigger event has occurred, static spreads and spread-adjusted fallback rates for cash products that transition away from U.S. dollar LIBOR.
United States – Derivatives
Letter to IRS and Treasury Requesting Guidance Regarding Financial Contract Discount Rate Transition
ARRC, 4 September 2020
The transition to SOFR discounting for cleared derivatives is a key step in the overall transition from LIBOR to SOFR, but because, for a large number of derivative contracts, the transition involves a shift from the effective federal funds rate (“EFFR”), instead of an interbank offered rate (an “IBOR”), Proposed Treasury Regulations section 1.1001-6 (the “Proposed Regulations”) does not apply. In order to fill this gap in guidance, the ARRC recommends that the final version of the Proposed Regulations apply to the transition to SOFR discounting by treating EFFR as an IBOR for this limited purpose.
United Kingdom – Loans
Statement on behalf of the Working Group on Sterling Risk-Free Reference Rates – Recommendations for SONIA Loan Market Conventions and Detailed Loans Conventions
Bank of England Working Group on Sterling Risk-Free Reference Rates, 4 September 2020
The Working Group has issued its recommendations on conventions (including practical examples of lookbacks and observation shifts) to support the use of SONIA in loan markets for Sterling Bilateral and Syndicated Facilities, including Multicurrency Syndicated Facilities where there is a sterling currency option, with the aim of helping market participants be ready to offer non-LIBOR loan products by the end of 3Q2020.
Asia and Pacific Rim – Loans and Floating Rate Notes
Compounded Singapore Overnight Rate Average Index (“SORA Index”), Compounded SORA and MAS Floating Rate Notes (“MAS FRN”): A User Guide
Monetary Authority of Singapore, 1 September 2020
Explaining calculation methodologies, the terms of MAS floating rate notes, and the treatment of negative coupon rates.
Asia and Pacific Rim - Derivatives
SC-STS Outlines Role of Fallback Rate Arrangements for SOR Derivatives and new webpage dedicated to the role of fallbacks in benchmark transition
Steering Committee for SOR Transition to SORA, 1 September 2020
SC-STS outlined its views on the role played by fallback rates in the ongoing transition from SOR to SORA, reiterated its support for the use of fallback rates, and established a dedicated web page addressing Swap Offered Rate discontinuance and contractual fallbacks.
Asia and Pacific Rim – General
Financial Institutions' Preparedness for LIBOR Cessation and Future Actions with a Focus on the Results of the Joint Survey by the Financial Services Agency and the Bank of Japan
Bank of Japan, 11 August 2020
Highlighting the results of the first round of the October-December 2019 joint survey, which covered qualitative information, such as the managerial framework and allocation of staff to prepare for LIBOR cessation and the status of preparedness of business operations in the individual divisions of financial institutions.
Singapore Overnight Rate Average (“SORA”) - Key Features and Calculation Methodology
MAS, 5 August 2020
Includes descriptions of governance, reporting, and oversight.
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.
What Investment Advisers Need to Know: GDPR, ESG, US Privacy & Cybersecurity and LIBOR
Mayer Brown 14th Annual Investment Management Regulatory University, 9 September 2020 at 12pm EDT
Please join Mayer Brown lawyers Stephanie Monaco, Leslie Cruz, Chris Chapman, Oliver Yaros, Paul Forrester and Jeff Taft at the second session of our Annual Investment Management Regulatory University, during which they will discuss, among other topics, “LIBOR: What is at stake with the world’s most important number going away on December 31, 2021, and are you ready?” CLE credit is pending for this event.
SIFMA Compliance and Legal Virtual Forum
Securities Industry and Financial Markets Association, 23-24 September 2020
As part of this two-day conference, Mayer Brown partner Marlon Paz will lead an on-demand session for participants on Broker-Dealer Issues & Considerations Relating to LIBOR Cessation.