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Benchmark reform and transition to risk-free rates
ICMA has been engaging with regulators and members on the global issue of benchmark reform for several years.

Most recently, ICMA’s focus is the development of Risk-Free Reference Rates (RFRs), which are being developed in response to recommendations by the Financial Stability Board (FSB) made to increase confidence in the reliability and integrity of interest rate benchmarks.

In particular, ICMA is a member of the Working Group on Sterling Risk-Free Reference Rates, with Paul Richards (Head of Market Practice and Regulatory Policy, ICMA) chairing a sub-group focusing on benchmark transition issues in bond markets. ICMA is also a non-voting member of the Working group on euro risk-free rates established by the ECB, the Belgian Financial Services and Markets Authority, ESMA and the European Commission. ICMA also participates in the National Working Group on Swiss Franc Reference Rates.

ICMA published a Quick Guide to the transition to risk-free rates in the international bond market on 27 February 2020.

Set out below are links to ICMA and official sector information and materials on this topic.

In addition, benchmark-related resources in selected Asia-Pacific markets are available on this ICMA webpage.
 
 
ICMA materials
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Official and other key materials

Selected speeches
  • UK, February 2020: Andrew Hauser, Executive Director for Markets at the Bank of England, delivered a speech at the ISDA/SIFMA Asset Management Group Benchmark Strategies Forum 2020 in London: “Turbo-charging sterling LIBOR transition: why 2020 is the year for action – and what the Bank of England is doing to help”, in which he discussed two initiatives aimed at further supporting RFR transition, namely (1) the Bank of England intends to publish a daily SONIA Compounded Index and is considering publishing a simple set of compounded SONIA Period Averages and (2) from October 2020 the Bank will begin increasing haircuts on LIBOR-linked collateral it lends against. See further details in the “UK” section below.
  • Japan, January 2020: Masayoshi Amamiya, Deputy Governor of the Bank of Japan, gave a speech at the Kin′yu Konwa Kai (Financial Discussion Meeting) hosted by the Jiji Press on Interest Rate Benchmark Reform in Japan. Among other things, the speech highlights the results of a public consultation on Japanese Yen Interest Rate Benchmarks, which indicated that a "term reference rate" (which would be calculated based on future expectations of the Japanese risk-free rate (uncollateralized overnight call rate)), received the most support as an alternative benchmark to JPY LIBOR for both loans and bonds.
  • UK, November 2019: Edwin Schooling Latter, Director of Markets and Wholesale Policy, delivered a speech at the Risk.net LIBOR Summit, London, in which he stated that the key next steps in reducing the risks from continued use of the LIBOR benchmark include ending use of LIBOR in new sterling loans from Q3 2020, and making it standard to quote based on SONIA in sterling swap markets. He also describes in the speech how LIBOR could cease or fail the Benchmarks Regulation ‘representativeness’ test at end-2021, and how robust contractual fall back triggers can protect market participants from risks in both scenarios.
  • Euro area, October 2019: Steven Maijoor of ESMA discussed ESMA’s role under the BMR and more generally in the global reform of interest rates. He said: “There is a clear commitment by the administrator of EURIBOR and the public sector to sustain EURIBOR and the work will continue in the next years to ensure that the panel of banks contributing to EURIBOR is stable and representative. … Just as for all benchmarks authorised under the Regulation, fallback clauses are needed for EURIBOR too. This is because users, and their clients, should be able to know in advance what will happen to their contracts if EURIBOR ceases to be provided.”
  • US, September 2019: John Williams of the Federal Reserve Bank of New York gave a speech at the US Treasury Market Conference: LIBOR: The Clock is Ticking.
  • US, July 2019: Andrew Bailey spoke at the SIFMA LIBOR Transition Briefing in New York. John Williams of the Federal Reserve Bank of New York spoke at the same event: 901 days.
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Statements and other publications


UK: 
  • July 2020: The Working Group on Sterling Risk-Free Reference Rates released its monthly newsletter for June 2020.
  • June 2020: HM Treasury announced that it intends to bring forward legislation to amend the Benchmarks Regulation (BMR) to give the FCA enhanced powers. These could help manage an orderly wind-down of critical benchmarks such as LIBOR, and, in particular, help deal with the problem identified by the RFR Working Group in its Tough Legacy paper, of ‘tough legacy’ contracts that genuinely have no or inappropriate alternatives and no realistic ability to be renegotiated or amended.
    The legislation would empower the FCA to direct the administrator of LIBOR to change the benchmark methodology, if doing so would protect consumers and market integrity. This is consistent with the recommendations put forward by the Working Group, and would allow the FCA to stabilise certain LIBOR rates during a wind-down period so that limited use in legacy contracts could continue.
    The FCA has also published a supporting statement and Q&As.
    These statements also reiterate the importance of continued focus from market participants on active transition, and state that this remains the only way for parties to have certainty about contractual continuity and control over their contractual terms when LIBOR ceases or is no longer representative. The statements also stress that work to substitute existing LIBOR references, or adopt sufficiently robust fallbacks, including through market standard documents such as the ISDA protocol, should continue.
  • June 2020: The Bank of England published a Discussion Paper in February seeking market feedback on its intentions to publish a SONIA Compounded Index and the usefulness of publishing a set of compounded SONIA “period averages”. The Bank has now published a summary of the feedback received, together with the Bank’s response. Given near universal support from respondents, the Bank has confirmed it will publish a daily SONIA Compounded Index, likely in early August. Respondents’ feedback on the Bank producing a set of “period averages” were mixed, with a lack of consensus on both their usefulness and on the conventions underpinning such rates. As such, the Bank will not be producing them at this time.
  • June 2020: The Working Group on Sterling Risk-Free Reference Rates released its monthly newsletter for May 2020.
  • May 2020: The Working Group on Sterling Risk-Free Reference Rates (RFR WG) has published a paper on tough legacy issues, in line with the RFRWG’s 2020 priority to provide market input on issues around 'tough legacy'. Tough legacy contracts are considered those that do not have robust fallbacks and prove unable to be amended ahead of LIBOR discontinuation. The RFRWG’s Tough Legacy Taskforce has considered tough legacy issues across asset classes in the UK, and has concluded that there is a case for action to address these exposures. The case for action differs by asset class, depending on the contracts involved and the ability to amend the terms. To the extent it is feasible, the Taskforce proposes that the UK Government considers legislation to address ‘tough legacy’ exposures. However, the Taskforce recognises that there is no guarantee that such a solution will materialise, that it will materialise across all relevant legal jurisdictions, or that it would be available for all products and circumstances. The Taskforce also recognises that any potential solution may not be economically neutral or suitable for particular contracts.
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EU and euro area:

  • June 2020: the working group on euro risk-free rates published its recommendation on swaptions affected by the CCPs discounting transition to €STR.
  • May 2020: the working group on euro risk-free rates released a summary of responses to the public consultation on swaptions impacted by the CCP discounting transition from EONIA to €STR.
  • April 2020: The working group on euro risk-free rates released its April 2020 newsletter.
  • April 2020: The working group on euro risk-free rates met on 7 April, when proposals were set to delay certain working group deliverables owing to the COVID-19 crisis.
  • April 2020: The European Association of CCP Clearing Houses (EACH) has released a statement that it has agreed to suggest that the €STR discounting regime switch date be postponed to Monday 27 July 2020, subject to the successful conclusion of relevant internal agreements on the part of interested members of EACH.
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US:

  • June 2020: The ARRC has released responses to its supplemental consultation on spread adjustments. As a result of the feedback, the ARRC will implement its spread methodology recommendations as follows: for cash products other than consumer products, the ARRC’s recommended spread adjustment will match the value of ISDA’s spread adjustments to U.S. dollar LIBOR and for all cash products, in the event that a pre-cessation event is operative, the ARRC’s recommended 5-year historical median spread adjustments will be determined at the same time as the ISDA’s spread adjustments, which will be at the time of any announcement that LIBOR will or has ceased or will or has become no longer representative.
  • May 2020: The ARRC has published its April – May newsletter, which summarises the most recent ARRC, US official sector, market and international developments and SOFR market liquidity, and includes a section on COVID-19.
  • May 2020: The ARRC welcomed news from the Federal Housing Financing Agency (FHFA) of a LIBOR Transition Playbook, published jointly today by Fannie Mae and Freddie Mac. The Playbook addresses (among other things) Fannie Mae Multifamily (MF) ARMs and mortgage-backed securities, Floating Rate loans and securities. It, together with joint FAQs and other resources, are available on the LIBOR websites for Fannie Mae and Freddie Mac.
  • May 2020: The ARRC released recommended best practices for technology and operations vendors relevant to the transition from USD LIBOR to SOFR. The ARRC also released results from its recent vendor readiness survey on the status of work underway to facilitate the transition. For FRNs, the ARRC recommends a vendor readiness dates of no later than 30 June 2020 and for securitisations, no later than 31 December 2020.
  • May 2020: The ARRC has issued a supplemental consultation seeking further views on technical issues related to spread adjustment methodologies for cash products referencing USD LIBOR, which builds on the feedback received on its original consultation. The spread adjustments are intended for use in USD LIBOR contracts that have incorporated the ARRC’s recommended fallback language or for legacy USD LIBOR contracts where a spread-adjusted SOFR can be selected as a fallback. The ARRC announced that its recommended spread adjustment methodology would be based on a historical median over a five-year lookback period; this aligns with the ISDA recommended methodology for derivatives and would make the ARRC’s recommended spread-adjusted version of SOFR comparable to USD LIBOR. The ARRC is consulting on the option to use the same spread adjustment values that will be used by ISDA across all of the different fallback rates, rather than using the same adjustment methodology to calculate a different spread adjustment for each potential fallback rate. Recognizing that ISDA will now include a pre-cessation trigger, the supplemental consultation also seeks views on whether the timing of the calculation of the ARRC’s spread adjustment should match ISDA’s timing if a pre-cessation event is operative.
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Japan:
  • June 2020: The Bank of Japan has sent a Dear CEO letter setting out a series of required actions and submissions (with associated timings) required of financial institutions, given that LIBOR will be ceased permanently at the end of 2021.
  • March 2020: The Cross Industry Committee on JPY Interest Rate Benchmarks announced that Quick Corp. has been selected for calculating and publishing prototype rates for JPY term reference rates. Certain Committee documents, including a tentative plan for timing of publication of term reference rates, have also been made available, which show the publication of JPY term reference rates is anticipated for around mid-2021.
  • December 2019: The Cross-Industry Committee on Japanese Yen Interest Rate Benchmarks closed the call for applications following the release of a statement soliciting potential future administrators of JPY term reference rates in October 2019.
  • November 2019: The Cross-Industry Committee on Japanese Yen Interest Rate Benchmarks published a report on the results of its consultation on JPY interest rate benchmarks on 29 November. A summary of the main points and press release is also available.
  • August 2019: The Cross-Industry Committee on Japanese Yen Interest Rate Benchmarks established and held a first meeting of a Task Force on Term Reference Rates.
Asia Pacific:
  • September 2019: The Executives' Meeting of East Asia-Pacific (EMEAP) Working Group on Financial Markets has released a Study on Implications of Financial Benchmark Reforms, which aims to raise market awareness and further enhance market readiness for financial benchmark reforms. The Study focuses on the implications of LIBOR discontinuation, EU Benchmarks Regulation (BMR) and reform of local benchmarks in the EMEAP region.
Switzerland:
  • March 2020: SIX launched SARON Compound Indices for various time periods and updated its FAQ on the licensing model.
  • February 2020: SIX has published information on compounded SARON and the SARON Compound indices, including an appendix with a formula to calculate compounded SARON on non-business days.
  • February 2020: SIX has obtained endorsement by the Swedish Financial Supervisory Authority under the EU BMR in respect of its major Swiss indices, including SARON. These indices are now listed in the ESMA register.
  • December 2019: The National Working Group on Swiss Franc Reference Rates published an updated starter pack designed to inform readers about the transition from CHF LIBOR to SARON.
  • July 2019: The National Working Group on Swiss Franc Reference Rates published a discussion paper on SARON floating rate notes.
Global:
  • June 2020: The FMSB published a Spotlight Review on LIBOR transition: Case studies for navigating conduct risk. This Spotlight Review includes practice observations and practical case studies to support firms when considering the risks to fairness and effectiveness as the market moves to risk-free rates as more sustainable and representative benchmarks.
  • June 2020: ISDA has published a factsheet, Understanding IBOR Benchmark Fallbacks, together with a video interview, explaining why changes to fallbacks are necessary.
  • May 2020: ISDA published a report summarising the final responses to its consultation on the implementation of pre-cessation fallbacks for derivatives referencing LIBOR. The report confirmed ISDA’s preliminary findings, which is that a significant majority of respondents support including 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 expects to publish amendments to the 2006 ISDA Definitions to incorporate the fallbacks for new trades in July. A protocol will simultaneously be launched to allow participants to incorporate the revisions into legacy trades if they choose to. Both will come into effect before the end of the year.
  • April 2020: Bloomberg published a rulebook setting out the final methodologies for the IBOR fallbacks that ISDA expects to implement for certain key IBORs via a Supplement to the 2006 ISDA Definitions and related Protocol. The rulebook is available on the Bloomberg Terminal ({ISDA <Go>}), the Bloomberg website (linked to Bloomberg.com/LIBOR) and on the ISDA website. The final methodology is based on the results of the four market-wide consultations that ISDA conducted between 2018 and 2020.
    Bloomberg expects to publish indicative data on a currency-by-currency basis in the coming weeks. Bloomberg and ISDA will also publish additional educational materials to help market participants understand the IBOR fallback methodologies and how they will be implemented in ISDA documentation, and expect to host a webinar on these issues. The rulebook does not yet include pre-cessation fallbacks for LIBOR. It will be updated to cover this concept as work on how to implement pre-cessation fallbacks for LIBOR evolves.
  • April 2020: ISDA published its bilateral template agreement (available as a free download here) that can be used to: embed robust fallbacks into EONIA referencing transactions or collateral agreements, and/or switch references to EONIA to references to €STR or €STR+8.5bps in transactions, and/or switch references to EONIA to references to €STR in collateral agreements. The template allows the above options to be mixed. It does not stipulate whether any compensation is due in relation to such amendments but provides a blank clause which parties can use to specify compensation they may agree bilaterally. The template may also be used for non-ISDA documentation specified by the parties but ISDA has not conducted any due diligence on whether the agreement would be effective in relation to any non-ISDA documentation as drafted and so parties need to make their own determinations.
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General information and materials:



Contacts:

Paul Richards
Managing Director, Head of Market Practice and Regulatory Policy; Member of ICMA's Executive Committee  
Direct line: +44 20 7213 0315

Katie Kelly
Senior Director, Market Practice and Regulatory Policy; Secretary to the ICMA Financial Institution Issuer Forum (FIIF) and to the ICMA Corporate Issuer Forum (CIF).
Direct line: +44 20 7213 0331

Charlotte Bellamy
Senior Director, Market Practice and Regulatory Policy; secretary to the ICMA Legal & Documentation Committee (LDC) and related groups.
Direct line: +44 20 7213 0340

June 2020
ICMSA Bulletin on the discontinuation of LIBOR/IBORs – timeline of a consent solicitation

March 2020
ICMSA Bulletin on different approaches for IBOR transition under English law trust deeds and New York law indentures

January 2020
ICMSA Bulletin 200120/47 – Benchmark replacement and fallback provisions – Key principles and guidelines for agents and trustees

18 January 2019
ICMSA Bulletin 190118/45: The discontinuation of LIBOR/IBORS - implications for English-law agency roles

1 November 2018
ICMA and SIX Joint Conference - LIBOR to SARON: Are you ready?
Presentations given at this event are available on the ICMA event webpage.

18 October 2018
ICMSA Bulletin 81018/44: Implications for English law Trustees on discontinuation of LIBOR/IBORs

15 February 2017
ICMA response to the ICE Benchmark Administration Limited Additional Consultation on ICE LIBOR Evolution

31 March 2016
ICMA response to ESMA Discussion Paper on Benchmarks Regulation

29 January 2016
ICMA response to EMMI Consultative Position Paper on the Evolution of Euribor

16 October 2015
ICMA response to the ICE Benchmark Administration Limited Second Position Paper on the Evolution of ICE LIBOR

19 September 2014
ICMA response to the ICE Benchmark Administration Error Policy Consultation

29 November 2013
ICMA response to to ILOC / BBALIBOR Joint Consultation Paper on LIBOR Re-fixing

16 May 2013
ICMA response to IOSCO’s consultation on "Principles for Financial Benchmarks"

11 February 2013
ICMA response to IOSCO’s consultation on "Financial Benchmarks"
ICMA response to ESMA-EBA’s joint consultation on “Principles for Benchmark Setting Processes in the EU”

6 December 2012
ICMA response to the BBA’s consultation on "Strengthening LIBOR"

27 November 2012
ICMA response to the European Commission’s "Consultation Document on the Regulation of Indices"

7 September 2012
ICMA submission in relation to the August 2012 initial discussion paper “The Wheatley Review of LIBOR”




Contacts:

Paul Richards
Managing Director, Head of Market Practice and Regulatory Policy; Member of ICMA's Executive Committee  
Direct line: +44 20 7213 0315

Katie Kelly
Senior Director, Market Practice and Regulatory Policy; Secretary to the ICMA Financial Institution Issuer Forum (FIIF) and to the ICMA Corporate Issuer Forum (CIF).
Direct line: +44 20 7213 0331

Charlotte Bellamy
Senior Director, Market Practice and Regulatory Policy; secretary to the ICMA Legal & Documentation Committee (LDC) and related groups.
Direct line: +44 20 7213 0340

20 January 2020
APLMA, ASIFMA, ICMA, ISDA and KPMG held a webcast covering all aspects of LIBOR transition readiness, especially as it pertains to Asia-Pacific jurisdictions. This session focused on issues relevant for buy-side firms and corporate treasurers, such as debt issuance, interest rate derivatives hedging, and debt instruments held by investment managers.

25 June 2018
IBOR Global Benchmark Report 2018
Download the press release

1 February 2018
IBOR Global Benchmark Survey 2018 Transition Roadmap
Download the press release

31 January 2018
Joint trade association letter to the FSB regarding implementation of risk free rates and transition away from LIBOR: key issues for the global financial markets




Minutes of LIBOR Trade Association Working Party Meetings



Contacts:

Paul Richards
Managing Director, Head of Market Practice and Regulatory Policy; Member of ICMA's Executive Committee  
Direct line: +44 20 7213 0315

Katie Kelly
Senior Director, Market Practice and Regulatory Policy; Secretary to the ICMA Financial Institution Issuer Forum (FIIF) and to the ICMA Corporate Issuer Forum (CIF).
Direct line: +44 20 7213 0331

Charlotte Bellamy
Senior Director, Market Practice and Regulatory Policy; secretary to the ICMA Legal & Documentation Committee (LDC) and related groups.
Direct line: +44 20 7213 0340