The transition from Interbank Offered Rates (IBOR) to Alternative Risk-Free Rates (RFRs) has an impact on all financial and non-financial institutions operating with the impacted floating reference rates. It affects a wide range of financial instruments on the derivative and cash markets.

This blog edition highlights notable developments made publicly available by the global regulatory community, industry working groups and/or infrastructure providers over the month of September 2020. You will find more detail in our monthly EY IBOR Transition Newsletter, to which you may subscribe through the following link.

In Switzerland, the use of SARON is progressing throughout the industry. Schwyzer Kantonalbank and Bank Linth have announced the launch of SARON-based cash products from October 2020. Schaffhauser Kantonalbank will soon follow, offering SARON-based cash products from November 2020. Moreover, SARON is also spreading outside Switzerland borders since Liechtensteinische Landesbank announced SARON-based cash products.

At the same time, the development of fallback languages is also accelerating. The Loan Market Association recently published the exposure draft multicurrency term and revolving facilities agreement incorporating rate switch provisions designed to constitute an inclusion of pre-agreed conversion terms which could enable lenders to include clear contractual arrangements in all new and re-financed GBP LIBOR-referencing loan products in order to facilitate conversion to SONIA or other alternatives ahead of end-2021. The Alternative Reference Rates Committee updated its recommended Best Practices with regard to IBOR fallback language in bilateral business loans.

Nevertheless, the most awaited news is certainly the approval by the U.S. Department of Justice Antitrust Division of the IBOR fallbacks proposed by ISDA. Based on this recognition, ISDA shall release the fallback protocol and open it up for adherence within the coming weeks.

Finally, regulators are continuously encouraging the financial industry to start issuing and buying new alternative risk-free rates instruments. In September, the Working Group on Sterling Risk Free Rates published various papers intended to support firms in the transition of their existing GBP LIBOR-linked contracts. Besides the Financial Conduct Authority and the Bank of England are encouraging liquidity providers in the GBP swaps market to adopt new quoting conventions for inter-dealer trading based on SONIA instead of LIBOR from October 27, 2020.

Below is the full list of IBOR transition related developments included in our September 2020 IBOR Transition Newsletter.

Swiss highlights:

  • SIX launched calculator for compounded SARON
  • CHF NWG met to discuss progress of LIBOR transition in Switzerland and international developments
  • Development of SARON

International highlights:

  • ISDA responded to EFRAG on benchmark reform
  • ISDA published August ISDA-Clarus RFR Adoption Indicator
  • LMA published exposure draft multicurrency rate switch facility agreement in relation to GBP LIBOR transition for loans
  • LMA published list of RFR referencing syndicated and bilateral loans
  • ISDA updated interest rate reform workstream table
  • ISDA updated IBOR fallback protocol timetable
  • ISDA published IBOR fallback and RFR convention product table
  • ISDA SwapsInfo weekly analysis: September 2020
  • U.S. DOJ approved the proposed ISDA fallbacks

UK specific highlights:

  • BoE released statement on behalf of GBP RFR WG relating to LIBOR transition – Recommendations for SONIA Loan Market Conventions
  • GBP RFR WG’s news release: Securing SONIA-based sterling loan market
  • GBP RFR WG published papers assisting in GBP LIBOR-linked contracts’ transition
  • FCA released “LIBOR transition: getting my firm ready”
  • UK Finance issued guide on LIBOR discontinuation for business customers
  • FCA and BoE encouraged further switching to SONIA in interest rate swaps

US specific highlights:

  • ARRC released RFP seeking vendor to publish spreads and spread-adjusted fallback rates in relation to USD LIBOR transition
  • ARRC updated its recommended Best Practices with regard to IBOR fallback language in bilateral business loans
  • ARRC released RFP seeking vendor to publish forward-looking SOFR term rates
  • ARRC released addendum to recommendations for voluntary compensation for swaptions impacted by CCP discounting transition to SOFR
  • SOFR volumes jump as packs and bundles liquidity arrives
  • Freddie Mac evaluating potential impact of LIBOR cessation on legacy CMO bonds using “BBA Method”