Non-USD LIBOR cessation or non-representativeness at end 2021
In line with announcements from the Financial Conduct Authority (FCA), publication of 24 of the 35 LIBOR settings ceased from January 1, 2022.
1-, 3- and 6-month sterling and yen LIBOR settings will continue for the duration of 2022 on a ‘synthetic’ basis.
Synthetic JPY LIBOR will cease at the end of 2022.
On September 29, 2022, FCA announced their decision on the cessation of 1- and 6-month synthetic sterling LIBOR. Publication will continue until end-March 2023, after which these settings will permanently cease.
On November 23, 2022, FCA announced their decision to continue to require IBA to publish the 3-month synthetic sterling LIBOR setting until end-March 2024, after which it will cease permanently.
USD LIBOR cessation or non-representativeness from June 30, 2023
Five US dollar LIBOR settings (O/N, 1M, 3M, 6M &12M) continue to be calculated using panel bank submissions until mid-2023, although its use for new business will be restricted from end-2021, with limited exceptions.
O/N and 12M USD LIBOR last publication date will be June 30, 2023.
On November 23, 2022 – FCA announced a consultation on their proposal to require LIBOR’s administrator, IBA, to continue to publish the 1-, 3- and 6-month US dollar LIBOR settings under an unrepresentative ‘synthetic’ methodology until end-September 2024. After this, publication would cease permanently.
USD LIBOR dealing restrictions in 2022
The Federal Reserve Board, Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency has previously issued supervisory guidance encouraging banks to cease entering into new contracts that use USD LIBOR as a reference rate as soon as practicable and in any event by December 31, 2021. USD Dealing will be permitted in certain use cases as outlined in the SR 20-27 Interagency Statement on LIBOR Transition.
- transactions executed for purposes of required participation in a central counterparty auction procedure in the case of a member default, including transactions to hedge the resulting USD LIBOR exposure;
- market making in support of client activity related to USD LIBOR transactions executed before January 1, 2022;
- transactions that reduce or hedge the bank's or any client of the bank's USD LIBOR exposure on contracts entered into before January 1, 2022; and
- novations of USD LIBOR transactions executed before January 1, 2022.
On October 20, 2021 - Fed, OCC, FDIC, CFPB, NCUA, state bank and credit union regulators issued a joint statement on managing the LIBOR transition. The statement includes: Clarification regarding new LIBOR contracts: A new contract would include an agreement that (i) creates additional LIBOR exposure for a supervised institution or (ii) extends the term of an existing LIBOR contract. A draw on an existing agreement that is legally enforceable (e.g., a committed credit facility) would not be viewed as a new contract. For more information on considerations when assessing appropriateness of alternative reference rates, expectations for fallback language and additional considerations, please visit the statement.
Industry developments
On December 16th, 2022 – the Federal Reserve Board adopted the final rule that implements Adjustable Interest Rate (LIBOR) Act by identifying benchmark rates based on SOFR (Secured Overnight Financing Rate) that will replace LIBOR in certain financial contracts after June 30, 2022.
On December 16th, 2022 – the FSB published a progress report on the transition from LIBOR and other benchmarks encouraging final transition to robust reference rates as cessation of remaining LIBOR panels approaches.
On November 23, 2022 - FCA released a further consultation and announcements on the wind-down of LIBOR. They proposing to require LIBOR’s administrator, IBA, to continue to publish the 1-, 3- and 6-month US dollar LIBOR settings under an unrepresentative ‘synthetic’ methodology until end-September 2024. After this, publication would cease permanently. For sterling LIBOR, they intend to continue to require IBA to publish the 3-month synthetic sterling LIBOR setting until end-March 2024, after which it will cease permanently.
- All market participants are encouraged to respond to the consultation by January 6, 2023
On November 14, 2022 - ICE Benchmark Administration (IBA) announced that it will cease the publication of all USD LIBOR ICE Swap Rate “runs” (i.e. USD LIBOR Rates 1100, USD LIBOR Spreads 1100 and USD LIBOR 1500) for all tenors immediately after publication on June 30, 2023.
On November 9, 2022 - ARRC posted their November 9, 2022 meeting readout.
On November 1, 2022 - Refinitiv announced that it will cease publication of Tokyo Swap Rate (for swaps referencing TIBOR). The final publication will be at 15:30 (Tokyo time) on March 31, 2023.
On October 13, 2022 – ARRC released Loan Remediation Survey results encouraging transition progress in U.S. Dollar (USD) LIBOR Business Loans but reinforce the need for timely action.
On October 10, 2022, The European Money Markets Institute (EMMI) announced the launch of EFTERM® from November 14 2022. This is a prominent event given that this new fallback rate will help EURIBOR® users to comply with the relevant legal requirements under the EU Benchmarks Regulation.
On September 29, 2022 - The FCA announced their decision on the cessation of 1- and 6-month synthetic sterling LIBOR. Publication will continue until end-March 2023, after which these settings will permanently cease. For synthetic yen LIBOR, market participants should be prepared for publication to cease permanently at end-2022, as set out previously.
On September 8, 2022 - ISDA guidance on the IBOR fallback rates was published by Bloomberg and the interaction among RFR publications, IBOR fallback publications and the ISDA Definitions has been published on the ISDA Website.
On September 8, 2022 – ARRC posted their September 8, 2022 meeting readout.
On August 31, 2022 - IBA published a consultation on the potential cessation of the publication of the USD LIBOR ICE Swap Rate for all tenors immediately after publication on June 30, 2023. Due date October 7, 2022
On August 24, 2022- The Bank of England published a Policy Statement on changes to the UK Derivatives Clearing Obligation further to interest rates benchmark reform
- The Bank’s final policy maintains the proposal in the June CP to add SOFR OIS contracts with an original maturity between 7 days and 50 years to the derivatives clearing obligation (DCO) from October 31, 2022 and to subsequently remove contracts referencing USD Libor.
- In the June CP, the bank proposed to align the date on which USD Libor contracts will be removed from the DCO with CCPs’ contractual conversions of those contracts. Consistent with that proposal, contracts referencing USD Libor will be removed from the DCO on 24 April 2023 (the first planned date of any CCP conversion)
In August 2022 - CME confirmed the approach for converting USD LIBOR cleared swaps.
- Basis swap splitting exercise: Friday, March 24, 2023
- Primary conversion date: Friday, April 21, 2023
- Secondary Conversion date: Monday, July 3, 2023
On August 16, 2022 - The FCA released a statement encouraging market participants to continue transition of LIBOR-linked bonds.
On August 12, 2022 - The CFTC Issued its Final Rule Modifying the Swap Clearing Requirement in support of the transition from LIBOR and Other Interbank Offered Rates to Alternative Reference Rates.
- The final rule removes the requirement to clear interest rate swaps referencing the London Interbank Offered Rate (LIBOR) and certain other interbank offered rates and replaces them with requirements to clear interest rate swaps referencing overnight, nearly risk-free reference rates.
On July 19, 2022 - Federal Reserve Board (FRB) issued a notice of proposed rulemaking implementing the Adjustable Interest Rate (LIBOR) Act enacted by Congress earlier this year
- The proposal would replace references to USD LIBOR in certain contracts with the applicable Board-selected replacement rate after June 30, 2023. The contracts include those governed by US state or federal law that do not mature before USD LIBOR ends and that lack adequate fallback provisions.
- The proposal identifies separate Board-selected replacement rates for derivatives transactions, contracts where a government-sponsored enterprise is a party, consumer contracts and all other affected contracts. As required by the law, each proposed replacement rate is based on the Secured Overnight Financing Rate (SOFR).
Useful Resources
Industry Groups
Changes to Interbank Offered Rates (IBORs) and other benchmark rates: Certain interest rate benchmarks are, or may in the future become, subject to ongoing international, national and other regulatory guidance, reform and proposals for reform. For more information, please consult: https://www.jpmorgan.com/global/disclosures/interbank_offered_rates
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