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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: 
  • April 2020: The Working Group on Sterling Risk Free Reference Rates published its monthly newsletter for March 2020.
  • March 2020: UK HMRC has published a draft guidance paper explaining its view on the tax implications of changes to financial instruments driven by benchmark reform. Among other things, there is a statement that “Where the parties agree to change the terms of the instrument for the purposes of responding to the withdrawal of LIBOR, HMRC would normally view this as a variation of the existing instrument. The amended contract should be regarded as the same contract and entered into at the same time as the original one. This would apply, for example, where the parties agree to replace LIBOR for one of the new reference rates or with a fixed interest rate. It does not matter if the spread on the instrument needs to be amended slightly, or if additional payments are made between the parties, provided the economics of the transaction remain mostly the same. Comments on the draft guidance are requested by 28 May 2020.
  • March 2020: The FCA, Bank of England and Working Group on Sterling Risk-Free Reference Rates issued a statement on the impact of COVID-19 on firm’s LIBOR transition plans. The central assumption that firms cannot rely on LIBOR being published after the end of 2021 has not changed and end-2021 should remain the target date for all firms to meet. The full statement is available on the Working Group on Sterling Risk-Free Reference Rates' website and the FCA website.
  • March 2020: The Working Group on Sterling Risk-Free Reference Rates published a summary of responses to its consultation on credit adjustment spread methodologies for fallbacks in cash products referencing GBP LIBOR. The consultation identified a strong consensus in favour of the historical 5 year median approach, in line with the approach adopted by ISDA, as the preferred methodology for credit adjustment spreads across both cessation and pre-cessation fallbacks for cash products maturing beyond end-2021.
  • March 2020: The FCA released a statement on how it would announce LIBOR contractual triggers.
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EU and euro area:

  • March 2020: The European Commission published a roadmap of the BMR review.
  • March 2020: The working group on euro risk-free rates published its March 2020 newsletter.
  • March 2020: The working group on euro risk-free rates updated its communications toolkit, including the slides on EURIBOR fallbacks.
  • March 2020: The working group on euro risk-free rates published a consultation giving interested parties the opportunity to provide feedback as to whether the working group should issue recommendations regarding the voluntary exchange (or lack thereof) of cash compensation between bilateral counterparties to swaption contracts impacted by the CCP discounting switch from EONIA to the €STR. The working group expects that the feedback on this consultation document will provide valuable input in order to evaluate whether recommendations from the working group would be of assistance to the market and, if so, what the recommended approach should be. The deadline for responses is 3 April 2020. The European Commission and the European Central Bank will evaluate all responses and prepare an anonymised summary of their feedback. This summary will be published on the ECB’s website and considered by the working group at its meeting on 21 April 2020.
  • March 2020: ESMA launched a consultation on draft RTS under the EU Benchmarks Regulation covering various aspects relevant to benchmark administrators (e.g. governance, benchmark methodology, systems and controls). There is also a section on mandatory administration of a critical benchmark, which proposes the minimum criteria that NCAs should take into account when assessing the cessation of a critical benchmark or the transition of a critical benchmark to a new administrator pursuant to Article 21(1)(b) of the BMR. The deadline for responses is 9 May 2020.
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US:

  • April 2020: The ARRC announced a recommendation of a spread adjustment methodology for cash products based on a historical median over a five-year lookback period calculating the difference between USD LIBOR and SOFR. This matches the methodology recommended by ISDA for derivatives and would make the ARRC’s recommended spread-adjusted version of SOFR comparable to USD LIBOR and consistent with ISDA’s fallbacks for derivatives markets.
  • March 2020: The ARRC released its February-March 2020 newsletter. This newsletter summarises the most recent ARRC, US official sector, market and international developments and SOFR market liquidity.
  • March 2020: The ARRC released a proposal for New York State legislation. The legislation is intended to minimize legal uncertainty and adverse economic impacts associated with LIBOR transition. The ARRC will hold a webinar on the legislative proposal in the coming weeks.
  • March 2020: The ARRC announced that it is extending the comment period for public feedback on its consultation about spread adjustment methodologies for cash products referencing USD LIBOR. The consultation was initially released on 21 January 2020 and the comment period is being extended until 25 March 2020 to provide sufficient time to allow for thorough feedback. The consultation proposes a static spread adjustment that would be implemented at a specific time on or before USD LIBOR’s cessation and would make the spread-adjusted version of the SOFR comparable to USD LIBOR.
  • March 2020: The Federal Reserve Bank of New York began publishing 30-, 90-, and 180-day SOFR Averages as well as a SOFR Index, in order to support a successful transition away from USD LIBOR. The Chair of the ARRC welcomed this.
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Japan:
  • 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:
  • March 2020: ISDA has extended the deadline for responses to its consultation on how to implement pre-cessation fallbacks to 1 April 2020. ISDA had previously announced that it would re-consult following (i) the release of new information by the FCA and the IBA on the length of time LIBOR may be published following a regulatory statement that the benchmark is no longer representative of the underlying market; and (ii) the launch of a consultation by LCH on proposed rule book changes to implement pre-cessation fallbacks. The statements and this new consultation follow a 2019 ISDA consultation that was unable to find market consensus on how to implement pre-cessation fallbacks in derivatives contracts. The new consultation asks whether the 2006 ISDA Definitions should be amended to include fallbacks that would apply to all covered derivatives following the permanent cessation of an IBOR or a ‘non-representative’ pre-cessation event, whichever occurs first. Under this scenario, a single protocol would also be launched to allow participants to include both pre-cessation and permanent cessation fallbacks within their legacy derivatives trades.
  • March 2020: ISDA published a report summarising the final results of its supplemental consultation on the spread and term adjustments that would apply to fallbacks for derivatives referencing euro LIBOR and EURIBOR. The report confirms the findings published by ISDA at the end of February 2020 that the overwhelming majority of respondents agreed with an implementation based on the ‘compounded setting in arrears rate approach with a backward-shift adjustment’ and a spread adjustment based on a ‘historical median over a five-year lookback period’ for fallbacks in derivatives referencing EUR LIBOR and EURIBOR and other less widely used IBORs, consistent with the preferred approach for other IBOR fallbacks.
  • February 2020: The Basel Committee on Banking Supervision (BCBS) published a newsletter on benchmark rate reforms. Among other things, it confirms that, under the Basel Framework, amendments to capital instruments pursued solely for the purpose of implementing benchmark rate reforms will not result in them being treated as new instruments for the purpose of assessing the minimum maturity and call date requirements or affect their eligibility for transitional arrangements of Basel III.
  • February 2020: ISDA has published a table identifying its key workstreams relating to IBOR reform and the development of RFRs.
  • January 2020: IBA launched a consultation on the introduction of an ICE Swap Rate based on SONIA. (ICE Swap Rate represents the mid-price for interest rate swaps (the fixed leg), at particular times of the day, in EUR, GBP and USD and in tenors ranging from 1 year to 30 years. ICE Swap Rate is used for various purposes, including in some bonds.) The consultation focuses on the introduction of a new suite of ICE Swap Rate tenors which will have SONIA as the floating leg. Comments are invited by 20 March 2020.
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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

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