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Leaving LIBOR:
A Landmark Transition

The move away from the London Interbank Offered Rate (LIBOR) is a global phenomenon that has the financial industry mobilizing ahead of a looming deadline.

Updated: April 6, 2021

Industry developments

  • The Hong Kong Monetary Authority (HKMA) and the Treasury Markets Association (TMA) updated its timeline to cease the issuance of new LIBOR-linked products by the end of 2021. This aligns with guidance published by the Federal Reserve Board, Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency.

  • On March 24, the NYS legislature passed legislation consistent with the ARRC’s legislative proposal.  If signed into law by the NYS Governor, the legislation, by operation of law, would insert ARRC-recommended fallback language in LIBOR-referencing contracts that are governed by NY law and either a) have no fallback provisions addressing a cessation of LIBOR or b) fall back to the last LIBOR fixing / dealer poll.  Additionally, the legislation provides a liability and litigation safe harbor to parties that have contractual discretion to choose a replacement for LIBOR if they select the fallback recommended by the ARRC for that particular type of product.  The legislation has no effect on contracts, securities or instruments that fall back to a rate that is not LIBOR (e.g., Prime, FFE) or on contracts where the parties to the contract have agreed that the legislation will not apply. 

  • The Alternative Reference Rates Committee (ARRC) confirmed that it will not be in a position to recommend a forward-looking term SOFR rate by its mid-2021 target. This decision is based on the ARRC’s assessment of insufficient liquidity in the SOFR derivatives market and the need to develop recommendations for an appropriately limited scope of use for the term rates. The ARRC encourages market participants to transition from LIBOR using the tools available now.

  • The Financial Conduct Authority (FCA) has formally announced the cessation of LIBOR. This is a very important step in the transition as it formally confirms the next steps in the transition path. This notification was expected and may result in an increase in trading volumes in the alternative reference rates. This statement also locks in the credit spread adjustment that will be applied to derivative products and some cash products as well. These spreads will be fixed for the duration of the product they are applied to.

  • 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. New contracts entered into before December 31, 2021 should either utilize a reference rate other than LIBOR or have robust fallback language that includes a clearly-defined alternative reference rate after LIBOR’s discontinuation. Additionally, the Federal Reserve Board issued examiner guidance for assessing supervised firm's progress in preparing for the transition.

  • The Working Group on Sterling Risk Free Reference Rates (RFRWG) has published the Path to Ending New Use of GBP LIBOR-linked derivatives which offers guidance related to GBP LIBOR dealings after the end of Q1 2021. This document supports milestones outlined in the RFRWG priorities and roadmap for 2021.

  • The Steering Committee for Swap Offered Rate (SOR) & Singapore Interbank Offered Rate (SIBOR) Transition to Singapore Overnight Rate Average (SORA) (SC-STS) published a document which outlines steps and activities in support of the transition to SORA. Key steps outlined include broadening and deepening liquidity in SORA markets, early cessation of new SOR and SIBOR contracts, and supporting active transition of SOR linked legacy contracts.

  • The International Swaps and Derivative Association (ISDA) IBOR Fallbacks Supplement to the 2006 ISDA Definitions and the ISDA 2020 IBOR Fallbacks Protocol took effect on January 25, 2021. New contracts that reference ISDA’s standard interest rate definitions executed from January 25 will include new fallbacks linked to key Interbank Offered Rates (IBORs). Legacy non-cleared derivative contracts where both counterparties bilaterally agreed to include the definitions or h ave adhered to the ISDA 2020 IBOR Fallbacks Protocol will include the new fallbacks. Market participants can continue to adhere to the Protocol. More information from ISDA on benchmark reform and the transition from LIBOR can be found on its website.

  • On January 11 2021, Refinitiv Benchmark Services (UK) Limited and the ICE Benchmark Administration (IBA) began publishing forward-looking SONIA term risk-free rates. The published Term SONIA is available for one, three, six, and 12-month tenors.

  • The Steering Committee on Commercial Banks' Preparedness on LIBOR Discontinuation and the Bank of Thailand (BOT) set out transition milestones for financial institutions to move away from the Thai Baht Interest Rate Fixing (THBFIX) and to expedite the adoption of Thai Overnight Repurchase Rate (THOR), the Thai Baht risk free rate. The milestones indicate that financial institutions should cease offering new loans, bonds and structured products referencing THBFIX with maturity after 2021 by July 1, 2021, and that the publication of THBFIX is targeted to cease by end-2024.

  • FCA published a statement setting out its potential approach to the use of the proposed new powers under the Financial Services Bill to ensure an orderly wind down of LIBOR. The FCA also published consultations on its proposed policy relating to how it would use these new powers.

  • On November 20, 2020 the Financial Stability Board (FSB) published “Reforming Major Interest Rate Benchmarks: 2020 Progress Report with the key headline being “Work to transition away from LIBOR needs to accelerate in early 2021”. The report summarizes reforms to a number of benchmarks and aims to highlight milestones met in the FSB’s proposed roadmap, which recommends steps for financial and non-financial firms to ensure a smooth LIBOR transition.

  • Refinitiv Benchmark Services (UK) Limited, the administrator for Canadian Dollar Offered Rate (CDOR) announced that the calculation and publication of the 6-month and 12-month CDOR tenors will cease on May 17, 2021 with the final publication for the 6-month and 12-month CDOR tenors on May 14, 2021. In response, ISDA provided guidance on how to manage over-the-counter derivatives that may be affected by the cessation of the publication of 6-month and 12-month CDOR.

    Podcasts | MARKETS
U.S. Dollar LIBOR Transition Update
31:23 J.P. Morgan’s Chris Palmer, head of firm-wide LIBOR Transition Program, Josh Younger, head of U.S. Interest Rate Derivatives Strategy, and Ben Kinney, co-Head of Global Rates Sales discuss recent regulatory announcements and the practical implications of a USD LIBOR extension. Recorded December 4, 2020.
Article | MARKETS
LIBOR and the New Normal
J.P. Morgan outlines the path for adopting Risk-Free Rates (RFRs), as global markets transition away from the London Interbank Offer Rate (LIBOR).
Resource | MARKETS
IBOR Reform Frequently Asked Questions
Key questions to help you prepare for the transition
    Podcasts | MARKETS
Benchmark Reform Around the World
31:03 In our second podcast episode, J.P. Morgan's Charles Bristow, global head of Rates, Chris Palmer, who leads the firm-wide LIBOR transition program and Cyprien Decoux, head of Rates Structuring EMEA, discuss international benchmark reform.
 
    Podcasts | MARKETS
Building a Benchmark: Hear From the Experts
27:41 Guest speaker Nadine Bates, mortgage-finance firm Fannie Mae’s Treasurer, and Sandie O’Connor, who has worked at J.P. Morgan for over 30 years and chaired the Alternative Reference Rates Committee (ARRC), discuss transitioning to SOFR in the U.S. benchmark reform.

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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