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 October 2020. You will find more detail in our monthly EY IBOR Transition Newsletter, to which you may subscribe through the following link.

At an international level, industry associations and working groups are continuously issuing guidelines and useful documents to enable stakeholders to prepare for a smooth transition. For instance, ISDA recently issued the IBOR Fallbacks Supplement to the 2006 ISDA Definitions and the ISDA 2020 IBOR Fallbacks Protocol. Both of these will take effect on January 25, 2021. Many regulators and working groups have encouraged adherence to the protocol. At launch, 257 derivatives market participants had already adhered during the two-week pre-launch “escrow period”. Moreover, the Loan Market Association published a note highlighting considerations relating to inclusion, in the LMA’s Revised Replacement of Screen Rate Clause, of a specific pre-cessation trigger relating to a benchmark rate no longer being representative.

In the Swiss market, the Swiss Bankers Association has published the Benchmark Amendment Agreement and Supplemental Interest Rates, Risk Free Rates (RFR) and EONIA Definitions which are applicable to Swiss Master Agreements. At the same time, SARON is continuing its growth within the industry. Following in Schwyzer Kantonalbank and Schaffhauser Kantonalbank’s footsteps in the previous month, Nidwalden Kantonalbank, Zuger Kantonalbank, Baloise Bank and Bank Zimmerberg have announced the launch of SARON-based mortgages. Moreover, Raiffeisen issued their first AT1 Debt which fully incorporates the SARON fallback mechanism.

Finally, the situation is also evolving in the US market. In October 2020, LCH completed its transition to SOFR discounting and Price Alignment Interest (PAI), replacing the Federal Funds rate and announced that it has successfully transitioned over one million cleared contracts with a total notional amount of USD 120 trillion.

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

Swiss highlights:

  • SIX launched SARON 3 months Compound Index
  • SIX updated the “Methodology Rulebook Governing the Swiss Reference Rates”
  • FINMA released guidance on LIBOR transition
  • CHF NWG published minutes from its latest meeting
  • SIX launched new licensing model regarding derived data and benchmarks based on SARON
  • SBA published the Benchmark Amendment Agreement and supporting documents
  • Development of SARON

International highlights:

  • ECB published statement of €STR compliance with IOSCO Principles
  • LCH launched consultation on its solution for outstanding cleared EONIA contracts
  • ECB published summary of consultation responses on €STR compounded term rates
  • Council of the EU adopted position on amendments addressing LIBOR cessation
  • EUR RFR WG issued latest newsletter

International highlights:

  • ISDA published updated FAQs on IBOR Fallback Rate Adjustments
  • QUICK to publish daily prototype rates of TORF
  • Standard Chartered executed first USD-HKD swap citing HONIA, SOFR
  • ISDA published a statement on the launch of the IBOR Fallbacks Supplement and IBOR Fallbacks Protocol
  • FSB encouraged adherence to the ISDA IBOR Fallbacks Protocol
  • ISDA published September ISDA-Clarus RFR Adoption Indicator
  • Unilever and JP Morgan entered into SOFR swap
  • FSB published Global Transition Roadmap for LIBOR
  • LMA updated its list of syndicated and bilateral loans referencing RFRs
  • LMA published note on Revised Replacement of Screen Rate Clause and pre-cessation trigger
  • HKMA reminded of customer protection aspects of interest rates benchmarks reform
  • ISDA launched IBOR Fallbacks Supplement and IBOR Fallbacks Protocol
  • ISDA added ISDA Robotic Integrated Support to its Protocols and Benchmarks pages
  • ISDA SwapsInfo weekly analysis: October 2020

UK specific highlights:

  • GBP RFR WG published latest newsletter
  • IBA launched beta version of GBP SONIA ICE Swap Rate®
  • FCA informed markets must prepare for LIBOR discontinuation announcements
  • GBP RFR WG published key messages of its recent webinar and practical next step checklist
  • LCH included overnight index rates in cash collateral and default funds
  • SONIA conversion did not impact Barclays covered bonds’ rating
  • GBP RFR WG published Independent RFR Calculator Summary and Term SONIA Reference Rate Publication Summary
  • HM Treasury issued a policy statement on amendments to the EU Benchmarks Regulation
  • BoE signed up to the ISDA IBOR Fallbacks Protocol

US specific highlights:

  • ARRC published latest newsletter
  • OCC included LIBOR phaseout preparation in 2021 bank supervision operating plan’s focus
  • ARRC released FAQs to RFP for vendor to publish forward-looking SOFR term rates
  • ARRC urged adherence to the ISDA IBOR Fallbacks Protocol
  • Federal Reserve encouraged adherence to the ISDA IBOR Fallbacks Protocol
  • ARRC released FAQs to RFP for administration of recommended spread adjustments and spread-adjusted SOFR rates
  • CFTC provided reporting relief for swaps related to upcoming DCO auctions as part of the LIBOR transition
  • ARRC updated FAQs on developments, its work and the promotion of SOFR adoption
  • SOFR replaced Fed Funds for discounting of cleared derivatives
  • US Federal Housing Finance Agency urged adherence to the ISDA IBOR Fallbacks Protocol