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 expected for the end of 2021.

Updated: September 24, 2020

Industry developments

  • The UK Working Group on Sterling Risk-Free Reference Rates (RFR WG) has updated its priorities and roadmap for 2020-2021. This update reflects progress made since the previous roadmap was published in January 2020, and includes more granular milestones to manage the transition away from Sterling LIBOR-linked products by end-2021.

  • The UK Government announced that it intends to move forward legislation that would enhance the Financial Conduct Authority’s (FCA) authority under the Benchmark Regulation (BMR). This would provide the FCA the ability to manage and direct an orderly wind-down period of critical benchmarks like LIBOR. This legislation follows the Sterling RFRWG’s paper on the identification of “Tough Legacy” issues, which proposed UK legislation to assist with contracts that do not have robust fallback provisions or with contracts that would not be able to be amended prior to LIBOR cessation.

  • The FCA released a statement on the planned amendments to the Benchmark Regulation, which welcomed the UK Government’s legislation. The legislation would empower the FCA to direct the administrator of LIBOR to change the methodology used to compile the benchmark, as a means to protect consumers and market integrity. The FCA continues to urge market participants to move their contracts away from LIBOR prior to LIBOR being deemed non-representative, where possible.

  • Bank of England (BoE) began publishing the SONIA Compounded Index on August 3, 2020 as outlined in the response to the Discussion Paper on Supporting Risk-Free Rate transition. Per the BoE, each day’s SONIA Compounded Index will be made freely available on the Interactive Statistical Database by 10:00 GMT on the business day after it is first published. The full series of the SONIA Compounded Index back to April 23, 2018 will be on the IADB from August 3, 2020.

  • The Alternative Reference Rates Committee (ARRC) released the SOFR Starter Kit, a set of factsheets to inform the public about the transition away from U.S. dollar (USD) LIBOR to the Secured Overnight Financing Rate (SOFR), the ARRC’s recommended alternative reference rate. The SOFR Starter kit includes history and background on the transition and the ARR’s work to select SOFR, key facts about SOFR, and SOFR next steps.

  • On September 2nd, the ARRC released a Request for Proposals (RFP) for the Administration of Recommended Spread Adjustments and Spread-Adjusted SOFR Rates to facilitate contractual fallbacks. The ARRC will use responses to identify an administrator who will be responsible for calculating and publishing the spreads and the resulting interest rates based on the ARRC’s recommended fallback adjustment methodology. Questions and responses to the RFP should be sent to the ARRC Secretariat at arrc@ny.frb.org by October 16, 2020.

  • ISDA published a report summarizing the final results of the consultation on pre-cessation fallbacks for LIBOR. The results of the consultation indicate that a significant majority of respondents support pre-cessation and permanent cessation fallbacks without optionality or flexibility in the amended 2006 ISDA Definitions for LIBOR and in a single protocol for including the updated definitions in legacy trades. ISDA is expected to publish amendments to the 2006 ISDA Definitions in September 2020. This will incorporate the fallbacks into new trades. ISDA also plans to launch a protocol at the same time allowing market participants the option to incorporate the revisions into legacy trades. More information from ISDA can be found on their Benchmark Reform and Transition from LIBOR website. This includes information on items such as Supplement 64, which allows counterparties to specify discount rates on swaptions confirmations, ISDAs new factsheet outlining the need to change fallbacks, and Bloomberg’s Rulebook for IBOR Fallback Methodology.

  • ARRC Chair Tom Wipf sent a letter to ARRC Members urging them to be prepared to sign onto the International Swaps and Derivatives Association's (ISDA) IBOR Fallback Protocol, consistent with the ARRC's recommended Best Practices.

  • With developments in other financial markets, the Hong Kong Monetary Authority (HKMA) has, in consultation with the Treasury Markets Association (TMA), developed transition milestones which authorized institutions (AIs) are expected to achieve.

  • The Bank of Japan (BoJ) released its Second Public Consultation on the Appropriate Choice and Usage of Japanese Yen Interest Rate Benchmarks. Comments are due to the Cross-Industry Committee on Japanese Yen Interest Rate Benchmarks by September 30, 2020.

  • The Association of Banks in Singapore (ABS), the Singapore Foreign Exchange Market Committee (SFEMC) and the Steering Committee for SOR Transition to SORA issued a joint industry consultation report on the SIBOR reform and a shift to a SORA-centered SGD Interest Rate market. Feedback is due by September 30, 2020 to the ABS. More information on the SOR to SORA transition can be found on the ABS webpage.

  • The Securities and Exchange Commission’s Office of Compliance Inspections and Examinations announced the LIBOR Transition Preparedness as an examination priority for 2020.

 
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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.
 
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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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