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.
Virtually the same: 35th ISDA AGM
The Long and Short of It Blog, 20 May 2021
Summarizing highlights of select Annual General Meeting topics, including IBOR Transition.
Legislative solutions to tough legacy contracts are passed into UK law
Eye on IBOR Transition Blog, 19 May 2021
On 29 April 2021, the Financial Services Act 2021 received Royal Assent and became law in the United Kingdom. The Act introduced reforms to a number of key UK financial services frameworks (which also represent the first major changes to the UK regulatory landscape following the UK’s departure from the European Union on 31 December 2020), including amendments to the UK Benchmarks Regulation.
A LIBOR of love: considerations for use of IBOR fall-backs or active transition
The Long and Short of It Blog, 30 April 2021
Highlighting relevant considerations to the decision whether to actively transition derivative contracts to RFRs.
LIBOR: A Dramedy for our Times
Loan Syndications and Trading Association, 26 April 2021
Explaining when LIBOR will end, proposed replacements for LIBOR, and tips for lenders.
ARRC Releases Update on its RFP Process for Selecting a Forward-Looking SOFR Term Rate Administrator
ARRC, 21 May 2021
The ARRC has selected CME Group as its intended recommendation for administrator of Term SOFR, once rate approval criteria are satisfied. “The identification of CME Group [as administrator] leaves one final step in this work: the ARRC’s recommendation of a forward-looking SOFR term rate.”
Guide to Published SOFR Averages
Alternative Reference RC, 11 May 2021
Outlining the various ways that market participants can use averages of overnight SOFR in financial products and including the previously published ARRC conventions for using SOFR averages.
Market Indicators that Would Support an ARRC Recommendation of a Forward-Looking SOFR Term Rate
Alternative Reference Rates Committee, 6 May 2021
Indicators designed to measure progress in establishing deep and liquid SOFR derivatives and cash markets include (i) growth in overnight SOFR-linked derivatives volume, (ii) progress in offering electronic market-making in swaps, and (iii) growth in loan offerings linked to SOFR averages.
United Kingdom – Syndicated and Bilateral Loans
Best Practice Guide for GBP Loans
BOE, updated 18 March 2021
Addressing both new and legacy loans, and providing recommended milestones and conventions.
Recommendation of Successor Rate for fallbacks in bond documentation referencing GBP LIBOR
Bank of England, 1 May 2021
The Working Group recommends the use of overnight SONIA, compounded in arrears, as the successor rate recommended to replace GBP LIBOR for the purposes of the operation of fallbacks in bond documentation that envisage the selection of a recommended successor rate.
Consultation on successor rate to GBP LIBOR in legacy bonds referencing GBP LIBOR – Summary of Responses
Bank of England, 18 March 2021
Reporting on the results of the 1 February 2021 Consultation on successor rate to GBP LIBOR in legacy bonds referencing GBP LIBOR.
Consultation Paper - Derivatives clearing obligation – modifications to reflect interest rate benchmark reform: Amendments to BTS 2015/2205
Bank of England, 20 May 2021 – comments due by 14 July 2021
Proposal to remove contracts that reference benchmarks that are being discontinued and replace them with Overnight Index Swaps, with the same range of maturities, which reference the replacement RFR benchmarks selected for each currency.
ICE Benchmark Administration Launches GBP SONIA Spread-Adjusted ICE Swap Rate® ‘Beta’ Settings
ICE Benchmark Administration, 17 May 2021
The ‘Beta’ settings are published for tenors ranging from one to 30 years and are determined in line with the methodology proposed by the Working Group on Sterling Risk-Free Reference Rates in its paper “Transition in Sterling Non-Linear Derivatives referencing GBP LIBOR ICE Swap Rate (ISR)”.
Statement encouraging market participants in a switch to SONIA in the sterling exchange traded derivatives market from 17 June
Bank of England, 13 May 2021
An FCA survey of market participants identified strong support for a change in the standard trading conventions, which would see SONIA rather than LIBOR become the default traded instrument from 17 June 2021.
Letter from the Economic Secretary to RFR Working Group
HM Treasury, 7 May 2021
Responding to the 21 April 2021 Working Group Letter seeking an update on the Government’s approach to safe harbor protections in the Financial Services Bill.
Consultation paper (CP 21/15) – Benchmark Regulation: how we propose to use our powers over use of critical benchmarks
Financial Conduct Authority, 20 May 2021 – comments due by 17 June 2021
Seeking feedback to ensure that the FCA have appropriate regulatory powers to help reduce risk in the wind-down period before LIBOR ceases permanently.
Descending safely: Life after Libor
Bank of England, 11 May 2021 - speech by Andrew Bailey at ARRC SOFR Symposium
“Transition from Libor was always going to be challenging given its widespread use, but to those looking for an easy descent by substituting Libor for credit sensitive rates that do not address all of its fundamental weaknesses, they risk much of the good progress that has been made. While these rates may offer convenience as a short-term substitution, they present a range of complex longer term risks. And while they may remove the reliance on expert judgement, they veneer over the fundamental challenges of thin and incomplete markets through the extrapolation of data. The ability of such rates to maintain representativeness through periods of stress remains a challenge to which we have not seen adequate answers.”
Updated Top Level Priorities – 2021
BOE, updated 30 April 2021
Updating the roadmap and target milestones.
Transparency Draft - Standard on use of Term SONIA reference rates
FICC Markets Standards Board, 24 March 2021 – comments due 28 May 2021
Seeking to identify where there may be robust rationales for using Term SONIA for transactions in the loan, bond and derivatives markets.
Active transition of legacy GBP LIBOR contracts
Bank of England, 26 April 2021
Setting out a range of considerations to help market participants assess and prioritize the active transition of GBP LIBOR contracts to SONIA.
Recommendations on Euribor fallback trigger events and €STR-based Euribor fallback rates
European Central Bank, 11 May 2021
Trigger events should relate to permanent cessation, temporary non-availability, and non-representativeness, and the same trigger events should apply to all asset classes.
Updated Working Group on Euro Risk-Free Rates
European Securities and Markets Authority, 11 May 2021
As of 11 May 2021, administrative oversight for the Working Group on Euro Risk-Free Rates moved from the European Central Bank to the European Securities and Markets Authority. The group has an updated structure and mandate, including (i) transition from EONIA to €STR for multiple products, (ii) market education about EU interest rate reform and related effects, (iii) adoption of EURIBOR fallback provisions by EU supervised entities, and (iv) coordination with other global working groups on cross currency issues.
Compounded €STR Average Rates and Compounded €STR Index Data
ECB, from 15 April 2021
Current and historical €STR rate data.
Questions and Answers on the Benchmarks Regulation
European Securities and Markets Authority, 31 March 2021
Promoting common, uniform, and consistent supervisory approaches and practices in applying the EU Benchmarks Regulation.
SIX Adds Further SARON Compound Indices and Rates for Various Time Periods
Swiss Infrastructure and Exchange, 30 March 2021
Current and historical SARON rate data, including new compound rate and index tenors.
Discussion Paper: Alternative Reference Rate and Strategic Direction on KLIBOR and KLIRR for the Malaysian Financial Markets
Bank Negara Malaysia, 19 May 2021
Setting out the proposed framework, design and features pertaining to the development of an alternative reference rate, potential enhancements to the Kuala Lumpur Interbank Offered Rate (KLIBOR) as well as a review of the Kuala Lumpur Islamic Reference Rate (KLIRR).
Letter to Authorized Institutions – update re interest rate benchmark reform and transition milestones
Hong Kong Monetary Authority, 25 March 2021
The Hong Kong Monetary Authority and Treasury Markets Association advise that the target milestone of ceasing the issuance of LIBOR-linked products by 30 June 2021 has been extended to 31 December 2021 because “client awareness in this region has yet to be raised and some term ARRs remain unavailable.”
No Delay for US Dollar LIBOR
International Swaps and Derivatives Association, 22 April 2021 - informal comments by CEO, Scott O’Malia
“It’s tempting to look at the June 30, 2023 date set for the death of most US dollar LIBOR settings and see it as an 18-month delay. That is not the case…. A number of other alternatives to US dollar LIBOR have emerged…. [W]hichever option is chosen, firms shouldn’t leave the switch until the last minute.”
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. Listen to one of our most recent webcasts again:
LIBOR Transition: The IBOR Transition end game: the state of play in sterling loan markets
IBOR Transition Webcast Series, 29 April 2021
Mayer Brown Partner Ash McDermott and UK Finance LIBOR Transition Director Daniel Cichocki will discuss the impact of recent announcements and development on market participants, including what lenders and borrowers should be planning to do for the remainder of 2021, the impact of recent announcements on market participants that may not be regulated in the UK, such as funds and international banks, and predictions for further transition developments in 2021.
LIBOR Transition: Assessing the post IBOR cessation US litigation risk landscape
IBOR Transition Webcast Series, 30 April 2021
Discussing the recent New York LIBOR legislation and analyzing some of the key litigation risks that the cessation of LIBOR presents in spite of such legislation.
IBOR Transition: Current Status of U.S. Federal Tax Guidance
Intelligize Webinar, 12 May 2021 at 11:00 EDT
Mayer Brown attorneys Thomas Humphreys and Brennan Young provide an overview of IBOR replacement under current federal tax guidance and discuss practical considerations in connection with various different types of financial instruments.