ICMA response to FCA CP22/21 on ‘synthetic’ US dollar LIBOR


6 January 2023 ICMA has responded to FCA CP22/21 on ‘synthetic’ US dollar LIBOR. The key points in ICMA’s response are:

  1. ICMA welcomes the FCA’s proposal to require the publication of the 1-, 3- and 6-month synthetic US dollar LIBOR settings from 30 June 2023, which is essential for legacy US dollar LIBOR bonds outstanding when panel bank LIBOR ceases.
  2. ICMA agrees that the methodology for synthetic US dollar LIBOR needs to result in a rate that aligns with the rate that will be applied under the US LIBOR Act, which is expected to be the case. In line with the approach for synthetic sterling LIBOR, the market is also expecting synthetic LIBOR to appear as a single value incorporating both the term SOFR and ISDA fixed spread adjustment elements on the same screens (including commercial providers’ screens) as panel bank LIBOR.

  3. The proposal to permit use of synthetic US dollar LIBOR in all legacy LIBOR bonds, not just some of them, is welcome because it will avoid significant legal and practical uncertainty that could otherwise arise in the bond markets.

  4. ICMA appreciates that setting a realistic target date for cessation of synthetic US dollar LIBOR should encourage active transition, in cases in which active transition is feasible. But any unconditional commitment to cessation on 30 September 2024 at this stage would run unnecessary risks, which are set out more fully in the response.

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