Fri, Aug 27, 2021
The past month has seen progress on many fronts and several key announcements from regulators. In the U.S. we have seen the recommendation of the CME-term Secured Overnight Financing Rate (SOFR) by the Alternative Reference Rates Committee (ARRC). This will hopefully provide greater clarity on how to move forward with the U.S. dollar LIBOR transition.
On the other side of the Atlantic, regulators are recommending a move to risk free rates (RFR) first quotation for cross-currency swaps. A similar move for interest rate swaps earlier in the year gave a boost to RFR traded volumes, which will hopefully be echoed here, but also signals the move to increase emphasis on the products in the tough legacy portfolios.
For loan products, an area which has up to now been seen as lagging, guidance from the Sterling working group has been issued as we approach the looming end of Q3 deadline for transition of legacy loans.
We have also seen progress in Asia with the execution of the first RFR-based loans in Singapore.
Overall, we are seeing the transition momentum continuing to build as the clock ticks down.
General News
ARRC Formally Recommends Term SOFR, ARRC
FSB Issues Statements to Support a Smooth Transition Away From LIBOR by End 2021, The Financial Stability Board (FSB)
Market Details
The FCA and the Bank of England Encourage Market Participants in a Switch to RFRs in the LIBOR Cross-Currency Swaps Market From 21 September, Bank of England
Active Transition of Legacy GBP LIBOR Loan Contracts – Timelines and Considerations for Borrowers, The Working Group on Sterling Risk-Free Reference Rates
Regulatory Updates
Understanding IBOR Benchmark Fallbacks, Brattle
DBS, StanChart Execute First SORA Interbank Option Trade, Regulation Asia
The replacement of London Inter-Bank Offered Rate (LIBOR) is a multiyear transformation, and the impact will be a seismic shift in core operations, vendor relationships and loan products.
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