IBOR and Benchmark Reform Frequently Asked Questions - 01 October 2021 Version: 8.0
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IBOR and Benchmark Reform Frequently Asked Questions 01 October 2021 Version: 8.0
These Frequently Asked Questions (FAQs) are provided for information purposes only and may not
represent the views or opinions of Citigroup Inc. or its affiliates (collectively, "Citi"), employees or officers.
The information contained herein does not constitute and shall not be construed to constitute financial,
legal, tax, accounting or other advice by Citi. Citi makes no representation as to the accuracy,
completeness or timeliness of such information, which may also be subject to change.
These FAQs and any documents referenced in them (including any linked to FAQ responses) should not
be used or relied upon by any person/entity for any purposes whatsoever, including (i) for the purpose of
making regulatory decisions or (ii) to provide regulatory advice to another person/entity based on
matter(s) discussed herein. Recipients of this communication should obtain guidance and/or advice based
on their own particular circumstances and from their own professional advisors (financial, legal, tax,
accounting or otherwise) in light of IBOR and benchmark reform as they consider necessary. These FAQs
are not a commitment or firm offer and do not oblige us to enter into such a commitment, nor are we
acting as a fiduciary to you. Citi accepts no responsibility or liability to you with respect to the use of these
FAQs or their contents or the contents of any linked document or webpage.
We encourage you to keep up to date with the latest industry developments in relation to IBOR and
benchmark reform and to consider their impact on your business, using independent professional advisors
(financial, legal, tax, accounting or other) as you consider necessary. You should consider, and continue
to keep under review, the potential impact of IBOR and benchmark reform on any existing product you
have with Citi and/or any new product you enter into with Citi. The areas covered by these FAQs are
continually evolving across multiple product areas and jurisdictions; you should consult the relevant
sources. Links to some of the relevant working and industry groups are included throughout these FAQs.
Other than as expressly agreed in writing between you and Citi, Citi makes no representation, warranty
or assurance, and does not owe you any duty, nor have any liability to you, in relation to any IBOR reform-
related developments, nor is Citi able to advise you in relation to any IBOR reform-related developments
or in relation to individual products/services that might be impacted. These FAQs are not intended to be,
and should not be relied upon, as a representation, warranty or other assurance or as financial, legal, tax,
accounting or other advice. These FAQs are not intended to be comprehensive and material developments
may have occurred since they were last updated.
2Contents
THE BACKGROUND TO BENCHMARK TRANSITIONING ................................................................................. 6
1. What is an IBOR rate? ...................................................................................................................... 6
2. Why are IBORs being reformed and/or why is a transition to alternative rates being proposed?
…………………………………………………………………………………………………………………………………………………….6
3. When will the publication of representative LIBOR cease? ........................................................... 6
4. When should new LIBOR and LIBOR-linked products cease? ......................................................... 8
5. Are legislative solutions being considered to help the market transition away from IBORs? ...... 9
RISK FREE RATES ......................................................................................................................................... 10
6. How is each RFR calculated? How do they differ from IBORs? .................................................... 10
7. What RFRs have been proposed as alternatives to IBORs? .......................................................... 11
8. Are there forward-looking term RFRs and, if so, when will these be introduced? ..................... 13
9. What type of RFR products is Citi currently offering? .................................................................. 14
CREDIT SENSITIVE RATES ............................................................................................................................ 14
10. What type of credit sensitive rates are available? ........................................................................ 14
11. How do credit sensitive rates differ from Term SOFR?................................................................. 14
12. What are the key market developments regarding the use of credit sensitive rates? ............... 15
13. Have regulators raised any concerns with the use of credit sensitive rates? .............................. 15
FURTHER BENCHMARK REFORM ................................................................................................................ 16
14. What is happening to the Euro Overnight Index Average (“EONIA”)? ......................................... 16
15. Are EONIA and EuroSTR comparable rates?.................................................................................. 16
16. How will the change to EuroSTR affect legacy EONIA contracts? ................................................ 17
17. What is happening to the Effective Federal Funds Rate (“EFFR”)? .............................................. 18
18. How has EURIBOR been reformed? ............................................................................................... 18
19. How will the transition to RFRs from overnight rates (such as EONIA and EFFR) impact bilateral
collateral documentation referencing these overnight rates? ............................................................. 19
20. What is happening to HIBOR?........................................................................................................ 19
21. What about those rates which directly or indirectly reference IBORs, such as USD LIBOR? ...... 20
These FAQs are not intended to be, and should not be relied upon, as a representation, warranty or other assurance or as financial, legal, tax,
accounting or other advice. These FAQs are not intended to be comprehensive and material developments may have occurred since they were
last updated. These FAQs were first prepared prior to the date indicated above and may not have been updated to reflect recent market
developments. They contain information on IBOR and benchmark reform that is intended for the use of Citi clients only and should not be shared
with third parties. The information these FAQs contain is general and does not constitute advice. Citi accepts no responsibility or liability to you
with respect to the use of these FAQs or their contents. If you have questions in relation to the contents of these FAQs, you should consider
seeking independent professional advice (legal, tax, accounting, financial or other) as appropriate.
3CUSTOMER ENGAGEMENT WITH BENCHMARK TRANSITIONING .............................................................. 20
22. How do I know if I have an exposure to an IBOR? ........................................................................ 20
23. How will my Citi portfolio be impacted by the discontinuation of any IBOR? ............................ 20
24. How do I change my IBOR-linked contract to one which incorporates one of these new RFRs? 21
25. What happens if I do not amend my IBOR impacted contract? ................................................... 21
26. What can I do to prepare for the transition away from IBORs? ................................................... 21
27. What has Citi done so far in relation to IBOR transitioning?........................................................ 22
FALLBACK LANGUAGE & LEGACY BUSINESS ............................................................................................... 22
28. What is meant by ‘fallback language’ and ‘trigger events’? ......................................................... 22
29. Is there standardised fallback language? ...................................................................................... 23
30. What is ISDA’s work on IBOR fallback language for derivatives and why is this relevant? ........ 23
31. How will the fallback rates under the ISDA IBOR Fallbacks be calculated and published? ......... 24
32. Why do we need spread adjustments and how will they be calculated in the various markets?
…………………………………………………………………………………………………………………………………………………..25
33. If parties adhere to the IBOR Protocol, which existing contracts would be amended? .............. 26
34. When will RFR fallbacks under the IBOR Supplement and the IBOR Protocol take effect? ........ 26
35. How do the IBOR Supplement and IBOR Protocol account for a temporary cessation of an
IBOR? What fallbacks would apply in this instance? ........................................................................... 27
36. What is the adherence process to the IBOR Protocol? How does adherence to the IBOR
Protocol interact with the launch of the IBOR Supplement? ............................................................... 27
37. What is Citi doing in respect of the ISDA IBOR Fallbacks and what should I do in relation to
this?............. ........................................................................................................................................... 27
38. How is Citi positioning itself in respect of transitioning derivatives from IBORs to RFRs? ......... 28
THE BENCHMARKS SUPPLEMENT ............................................................................................................... 29
39. What is the Benchmarks Supplement? ......................................................................................... 29
40. Why should I consider incorporating the Benchmarks Supplement? .......................................... 29
41. What is the EU BMR and what are the benchmark user requirements? ..................................... 30
42. Will the provisions of the EU BMR still apply in the UK following the UK’s withdrawal from the
EU? …………………………………………………………………………………………………………………………………………………..30
These FAQs are not intended to be, and should not be relied upon, as a representation, warranty or other assurance or as financial, legal, tax,
accounting or other advice. These FAQs are not intended to be comprehensive and material developments may have occurred since they were
last updated. These FAQs were first prepared prior to the date indicated above and may not have been updated to reflect recent market
developments. They contain information on IBOR and benchmark reform that is intended for the use of Citi clients only and should not be shared
with third parties. The information these FAQs contain is general and does not constitute advice. Citi accepts no responsibility or liability to you
with respect to the use of these FAQs or their contents. If you have questions in relation to the contents of these FAQs, you should consider
seeking independent professional advice (legal, tax, accounting, financial or other) as appropriate.
4THE BENCHMARKS SUPPLEMENT FALLBACK LANGUAGE ........................................................................... 30
43. When is fallback language applied in the Benchmarks Supplement? .......................................... 30
44. How can the Benchmarks Supplement be incorporated? ............................................................ 31
45. What is the BMS Protocol? ............................................................................................................ 31
46. What is Citi doing in respect of the Benchmarks Supplement? ................................................... 31
47. How does the Benchmarks Supplement interact with the IBOR Supplement and the IBOR
Protocol?................................................................................................................................................. 32
BMS PROTOCOL ADHERENCE ..................................................................................................................... 32
48. Who can adhere to the BMS Protocol? ......................................................................................... 32
49. What should I do if I do not want to adhere to the BMS Protocol? ............................................. 32
50. How do I adhere to the BMS Protocol? ......................................................................................... 32
51. What about benchmark user transactions with Citi that are not documented under an ISDA
master agreement? ................................................................................................................................ 33
52. What should I do if I would like to discuss this topic with Citi? ................................................... 33
DEFINITIONS................................................................................................................................................ 34
These FAQs are not intended to be, and should not be relied upon, as a representation, warranty or other assurance or as financial, legal, tax,
accounting or other advice. These FAQs are not intended to be comprehensive and material developments may have occurred since they were
last updated. These FAQs were first prepared prior to the date indicated above and may not have been updated to reflect recent market
developments. They contain information on IBOR and benchmark reform that is intended for the use of Citi clients only and should not be shared
with third parties. The information these FAQs contain is general and does not constitute advice. Citi accepts no responsibility or liability to you
with respect to the use of these FAQs or their contents. If you have questions in relation to the contents of these FAQs, you should consider
seeking independent professional advice (legal, tax, accounting, financial or other) as appropriate.
5THE BACKGROUND TO BENCHMARK TRANSITIONING
1. What is an IBOR rate?
IBOR stands for "interbank offered rate" and "IBORs" is a general description for a number of different
interest rate benchmarks that historically derive from the rate at which banks could borrow from
other banks in particular markets and currencies. LIBOR (the London interbank offered rate) and
EURIBOR (the Euro interbank offered rate) are both examples of commonly used IBORs.
IBORs are used to determine a range of interest rate benchmarks in a number of financial products
and are used in a wide variety of markets.
2. Why are IBORs being reformed and/or why is a transition to alternative rates being proposed?
IBORs are generally determined by quotes submitted to the applicable benchmark administrator by
panel banks. These submissions are intended to be based on actual transactions in the interbank
market. However, over time banks have shifted away from unsecured interbank lending in favour of
alternative funding models. As a result, the number of transactions underpinning a variety of IBORs
has reduced, making many of the rates heavily reliant on "expert judgement" from the panel banks
submitting the quotes that determine the rates.
This has led to various regulatory authorities, including the UK’s Financial Conduct Authority (“FCA”),
forming the view that a range of IBORs, including LIBOR, need to be replaced or reformed.
3. When will the publication of representative LIBOR cease?
On 5 March 2021, the FCA formally announced (the “FCA LIBOR Announcement”) the future cessation
or loss of representativeness of:
all settings of EUR, CHF, JPY and GBP LIBOR, as well as one-week and 2M USD LIBOR settings,
after 31 December 2021; and
overnight, 1M, 3M, 6M and 12M USD LIBOR settings after 30 June 2023 (see the table below
for further information).
In respect of those currencies and tenors deemed non-representative (being the 1M, 3M and 6M
settings of each of GBP, JPY and USD LIBOR), the FCA may exercise its proposed new powers under
the UK Financial Services Bill to require ICE Benchmark Administration (“IBA”) to continue publishing
these LIBOR settings using a changed methodology (also known as publication on a ‘synthetic’ basis).
The FCA also states in the FCA LIBOR Announcement that:
such announcement is made by the FCA in the awareness that it will engage certain
contractual triggers for the calculation and future application of fallbacks that are activated
by pre-cessation or cessation announcements made by the FCA (howsoever described) in
contracts; and
These FAQs are not intended to be, and should not be relied upon, as a representation, warranty or other assurance or as financial, legal, tax,
accounting or other advice. These FAQs are not intended to be comprehensive and material developments may have occurred since they were
last updated. These FAQs were first prepared prior to the date indicated above and may not have been updated to reflect recent market
developments. They contain information on IBOR and benchmark reform that is intended for the use of Citi clients only and should not be shared
with third parties. The information these FAQs contain is general and does not constitute advice. Citi accepts no responsibility or liability to you
with respect to the use of these FAQs or their contents. If you have questions in relation to the contents of these FAQs, you should consider
seeking independent professional advice (legal, tax, accounting, financial or other) as appropriate.
6 the FCA would:
o consult on requiring IBA to continue to publish the 1M, 3M and 6M GBP and JPY LIBOR
settings for a further period after 31 December 2021 on a synthetic basis (JPY LIBOR
settings for 1 additional year); and
o continue to consider the case for requiring continued publication on a synthetic basis
of the 1M, 3M and 6M USD LIBOR settings for a further period after 30 June 2023,
taking into account views and evidence from the US authorities and other
stakeholders.
The FCA released Consultation Paper CP21/15 in May 2021 to consult on requiring IBA to continue to
publish the 1M, 3M and 6M GBP and JPY LIBOR settings for a further period after 31 December 2021
on a synthetic basis (JPY LIBOR settings for 1 additional year), with a Statement of Policy and Feedback
due to be issued in Q3 2021. The FCA has additionally released Consultation Paper (CP21/19) on the
methodology to be used for calculating synthetic GBP and JPY LIBOR, with responses due by 27 August
2021, and on 29 September 2021 it:
confirmed that its methodology will apply:
o forward-looking term versions of the relevant risk-free rate (i.e. the ICE Term SONIA
Reference Rates provided by IBA for GBP LIBOR, and the Tokyo Term Risk Free Rates
(TORF) provided by QUICK Benchmarks Inc., adjusted to be on a 360 day count basis,
for JPY LIBOR), plus
o the respective ISDA fixed spread adjustment (that is published for the purpose of
ISDA’s IBOR fallbacks for the 6 LIBOR settings); and
released a further Consultation Paper CP21/29 to consult on any use restrictions for these
synthetic GBP and JPY LIBOR settings, proposing to permit legacy use at least for the duration
of 2022 in all contracts except cleared derivatives.
The FCA LIBOR Announcement may have a contractual impact on your LIBOR-referencing contracts,
including with respect to triggering fallbacks relating to the cessation of LIBOR.
ISDA has separately confirmed in a statement that the FCA LIBOR Announcement constitutes an
“Index Cessation Event” under the IBOR Supplement and the IBOR Protocol for all 35 LIBOR settings.
As a result, the fallback spread adjustment published by Bloomberg has been fixed and published by
Bloomberg for all EUR, GBP, CHF, USD and JPY LIBOR settings.
We would encourage you to assess the impact of the FCA LIBOR Announcement on your portfolio and
to take appropriate independent professional advice (legal, tax, accounting, financial or other).
These FAQs are not intended to be, and should not be relied upon, as a representation, warranty or other assurance or as financial, legal, tax,
accounting or other advice. These FAQs are not intended to be comprehensive and material developments may have occurred since they were
last updated. These FAQs were first prepared prior to the date indicated above and may not have been updated to reflect recent market
developments. They contain information on IBOR and benchmark reform that is intended for the use of Citi clients only and should not be shared
with third parties. The information these FAQs contain is general and does not constitute advice. Citi accepts no responsibility or liability to you
with respect to the use of these FAQs or their contents. If you have questions in relation to the contents of these FAQs, you should consider
seeking independent professional advice (legal, tax, accounting, financial or other) as appropriate.
7LIBOR LIBOR Settings Last Date of Publication/ Non-Representative, Synthetic
Currency Representativeness Publication
USD Overnight and 12M June 30, 2023 N/A
USD 1-week and 2M December 31, 2021 N/A
USD 1M, 3M and 6M June 30, 2023 TBC
GBP Overnight, 1-week, 2M and December 31, 2021 N/A
12M
GBP 1M, 3M and 6M December 31, 2021 January 1, 2022 onward*
JPY Spot next, 1-week, 2M and December 31, 2021 N/A
12M
JPY 1M, 3M and 6M December 31, 2021 January 1, 2022 through
December 31, 2022
EUR, CHF All settings December 31, 2021 N/A
* The FCA has yet to determine an end date for the use of the relevant setting of synthetic GBP LIBOR, but has
noted that the exercise of its powers would need to be reviewed on an annual basis for a maximum period of 10
consecutive years.
4. When should new LIBOR and LIBOR-linked products cease?
In order to encourage the transition away from LIBOR and LIBOR-linked products, regulators and
working groups have issued milestone guidance on when parties should cease trading/issuing new
IBOR products:
the ARRC set 30 June 2021 as the target date by which market participants should not initiate
new LIBOR derivative trades maturing after 2021 that will increase LIBOR risk (unless for risk
or default management of legacy LIBOR positions) (here);
the Bank of England recommended that market participants should have ceased initiation of
new GBP LIBOR linked linear derivatives and cash products that expire after 2021 by the end
of Q1 2021, and should have ceased initiation of new GBP LIBOR non-linear derivatives by the
end of Q2 2021 (unless, in both cases, these are required for risk management of existing
positions) and has set the end of Q3 2021 as the target for completing active conversion of all
legacy GBP LIBOR contracts expiring after 2021 where viable and, if not viable, to have
ensured robust fallbacks have been adopted where possible (here);
US regulators have encouraged banks to cease entering into new contracts that use USD
LIBOR as a reference rate in products as soon as practicable and in any event by 31 December
2021, subject to risk management exceptions for legacy LIBOR positions (here);
the Monetary Authority of Singapore has encouraged Financial Institutions to cease the
issuance of new contracts referencing non-USD LIBOR (excluding JPY LIBOR derivatives
contracts) by the end of June 2021, to cease the issuance of new derivatives contracts
referencing JPY LIBOR by the end of September 2021 and to cease the issuance of new
contracts referencing USD LIBOR by the end of December 2021, subject to risk management
of existing positions (here);
These FAQs are not intended to be, and should not be relied upon, as a representation, warranty or other assurance or as financial, legal, tax,
accounting or other advice. These FAQs are not intended to be comprehensive and material developments may have occurred since they were
last updated. These FAQs were first prepared prior to the date indicated above and may not have been updated to reflect recent market
developments. They contain information on IBOR and benchmark reform that is intended for the use of Citi clients only and should not be shared
with third parties. The information these FAQs contain is general and does not constitute advice. Citi accepts no responsibility or liability to you
with respect to the use of these FAQs or their contents. If you have questions in relation to the contents of these FAQs, you should consider
seeking independent professional advice (legal, tax, accounting, financial or other) as appropriate.
8 the Steering Committee for SOR Transition to SORA recommended that all lenders and
borrowers cease issuance of SOR-linked cash products and derivatives that mature after end-
2021 by the end of April 2021 and at the end of September 2021 respectively, subject to risk
management exceptions for legacy LIBOR derivatives (here);
the Hong Kong Monetary Authority recommended that all authorised institutions should have
ceased to issue new LIBOR-linked products that will mature after 2021 by 30 June 2021 (here);
the Cross-Industry Committee on Japanese Yen Interest Rate Benchmarks proposed that firms
cease issuance of new bonds and loans referencing JPY LIBOR by the end of Q2 2021 and cease
entering into new interest rate swaps referencing JPY LIBOR by the end of Q3 2021, except
for the purposes of risk management of existing positions (here);
the Reserve Bank of India has encouraged market participants to cease entering into new
contracts that reference LIBOR and MIFOR as soon as practicable and in any event by 31
December 2021, subject to risk management for legacy contracts (here);
the Bank of Thailand and the Steering Committee on Commercial Banks’ Preparedness on
LIBOR Discontinuation have stated that, from 1 July 2021 onwards, all financial institutions
must not offer new loans and bonds structured products referencing THBFIX with a maturity
after 30 June 2023 (here);
the Bank Negara Malaysia has recommended that market participants cease the issuance of
new products referencing GBP, EUR, JPY, CHF and 1-week and 2-month USD LIBOR by the end
of Q2 2021, while contracts referencing the overnight, 1, 3, 6 and 12-month USD LIBOR are
recommended to cease by the end of Q4 2021;
the Australian Securities and Investments Commission and the Reserve Bank of Australia have
advised Australian institutions to cease the issuance of new LIBOR contracts beyond the end
of 2021 (here); and
the Financial Services Commission of Korea has recommended that Financial Institutions
refrain from entering into new LIBOR-based contracts after the end of 2021 (here).
Citi recognises the importance of aligning with these milestones, in particular now that the dates for
the permanent cessation of LIBOR have been confirmed and in order to ensure the transition to the
RFRs is as smooth as possible. We encourage you to review this guidance and to consider any impact
on your business.
5. Are legislative solutions being considered to help the market transition away from IBORs?
Legislative measures are being developed in a number of jurisdictions, in particular the US (New York),
EU and UK. The US (New York) measures1, the EU measures2 and the UK measures3 have been
1
https://www.nysenate.gov/legislation/bills/2021/S297
2
EU (Regulation (EU) 2021/168 of the European Parliament and of the Council amending Regulation (EU)
2016/1011(EU BMR), dated 10 February 2021 (and effective from 13 February 2021)
3
https://www.legislation.gov.uk/ukpga/2021/22/contents/enacted
These FAQs are not intended to be, and should not be relied upon, as a representation, warranty or other assurance or as financial, legal, tax,
accounting or other advice. These FAQs are not intended to be comprehensive and material developments may have occurred since they were
last updated. These FAQs were first prepared prior to the date indicated above and may not have been updated to reflect recent market
developments. They contain information on IBOR and benchmark reform that is intended for the use of Citi clients only and should not be shared
with third parties. The information these FAQs contain is general and does not constitute advice. Citi accepts no responsibility or liability to you
with respect to the use of these FAQs or their contents. If you have questions in relation to the contents of these FAQs, you should consider
seeking independent professional advice (legal, tax, accounting, financial or other) as appropriate.
9adopted into law (together, the “Legislative Solutions”). Generally, the Legislative Solutions are
designed to target contracts which have either no LIBOR fallbacks or no suitable LIBOR fallbacks and,
in relation to certain of the Legislative Solutions, which cannot practicably move to new rates or be
amended by insertion of suitable fallbacks. The US (New York) and EU measures involve replacing
LIBOR with a replacement rate by operation of law, the form of which remains to be selected or
recommended in accordance with the terms of the relevant Legislative Solution. In contrast, the UK
measures permit the FCA to direct a methodology change for LIBOR and, as such, LIBOR would
continue to exist with a modified methodology (so called “synthetic LIBOR”) and be published on the
same screen page currently referenced by contracts globally. Under the UK measures, the FCA is also
able to prohibit use of “synthetic LIBOR” (for supervised entities) whilst permitting limited continued
use in certain contracts (i.e. “tough legacy” contracts).
However, the Legislative Solutions contain various dependencies which drive whether or not they will
affect any particular contract and their application is therefore expected to have limitations. These
dependencies (which, in the case of the UK measures, are still subject to clarification) may include:
(i) whether these measures only have an impact on certain entities established or supervised in
certain jurisdictions or certain LIBOR rates or tenors,
(ii) contracts governed by certain laws or certain types of contracts; and
(iii) whether or not the market needs to have achieved certain transition milestones before these
measures can be implemented.
In some cases, the legislation merely involves granting powers to a regulatory body to decide at a later
date whether or not and how to implement their powers based on market developments.
Citi’s policy is to actively transition LIBOR contracts to new rates or suitable fallbacks. An attempt to
rely on unknown mandatory replacement rates has a potential to result in unforeseen or undesirable
commercial impacts. Regulators, including the FCA, have taken the same view. The FCA have
specifically recommended that we do not rely on these measures. Citi will monitor the situation as it
develops.
RISK FREE RATES
6. How is each RFR calculated? How do they differ from IBORs?
RFRs are calculated on a different basis and are not like-for-like replacements for IBORs. IBORs are set
at or prior to the commencement of the period to which they relate, allowing certainty during such a
period as to the amounts which will be due at the end of that period. Taking LIBOR as an example,
set out below is a non-exhaustive list of the differences between LIBOR and RFRs.
LIBOR is a term rate benchmark across multiple tenors (O/N, 1W, 1M, 2M, 3M, 6M, 12M),
whereas RFRs are overnight rates with no term element;
LIBOR is a forward-looking rate, whereas RFRs are backward-looking rates;
These FAQs are not intended to be, and should not be relied upon, as a representation, warranty or other assurance or as financial, legal, tax,
accounting or other advice. These FAQs are not intended to be comprehensive and material developments may have occurred since they were
last updated. These FAQs were first prepared prior to the date indicated above and may not have been updated to reflect recent market
developments. They contain information on IBOR and benchmark reform that is intended for the use of Citi clients only and should not be shared
with third parties. The information these FAQs contain is general and does not constitute advice. Citi accepts no responsibility or liability to you
with respect to the use of these FAQs or their contents. If you have questions in relation to the contents of these FAQs, you should consider
seeking independent professional advice (legal, tax, accounting, financial or other) as appropriate.
10 LIBOR contains a premium for bank credit and term liquidity risk. In contrast, while the
precise nature of each RFR may vary, in general the RFRs contain little or no such
additional premiums because they are overnight and sometimes secured; and
For each LIBOR currency, the replacement RFR would have both distinct characteristics
and a distinct RFR administrator, whereas LIBOR is administered by a single administrator
for all currencies, according to a single set of characteristics.
7. What RFRs have been proposed as alternatives to IBORs?
Various authorities and industry working groups have identified certain RFRs as alternatives or
fallbacks for IBORs and/or have considered how existing benchmark rates might be reformed in
accordance with applicable regulation. For each existing IBOR and the alternative RFR, the proposals
are at different stages and some continue to evolve.
You should consider now, and continue to keep under review, the potential impact of such future
changes to the reference rate of financial products relevant to your portfolio and the services you
receive. The table below sets out IBORs for fourteen currencies and corresponding RFRs which have
been identified as fallback rates to ISDA by regulators and industry working groups as of the date of
these FAQs.
COUNTRY IBOR RATE STATUS ALTERNATIVE RFR TRANSITION COMMITTEE WEBSITE
United Kingdom GBP LIBOR Cessation after 31 SONIA Sterling Working Group on Risk-Free
December 2021 Rates
United States USD LIBOR: 1W Cessation after 31 SOFR Alternative Reference Rates
and 2M tenors December 2021 Committee (ARRC)
USD LIBOR: Cessation after 30
Remaining June 2023
tenors
Japan TIBOR Reformed and TONA Cross-Industry Committee on
expected to Japanese Yen Interest Rate
continue Benchmarks
JPY LIBOR Cessation after 31 TONA
December 2021
Euroyen TIBOR Reformed but at TONA
risk of ceasing
Europe EUR LIBOR Cessation after 31 €STR / EuroSTR ECB Working Group on Euro Risk-Free
December 2021 Rates
These FAQs are not intended to be, and should not be relied upon, as a representation, warranty or other assurance or as financial, legal, tax,
accounting or other advice. These FAQs are not intended to be comprehensive and material developments may have occurred since they were
last updated. These FAQs were first prepared prior to the date indicated above and may not have been updated to reflect recent market
developments. They contain information on IBOR and benchmark reform that is intended for the use of Citi clients only and should not be shared
with third parties. The information these FAQs contain is general and does not constitute advice. Citi accepts no responsibility or liability to you
with respect to the use of these FAQs or their contents. If you have questions in relation to the contents of these FAQs, you should consider
seeking independent professional advice (legal, tax, accounting, financial or other) as appropriate.
11European Money Markets Institute
EURIBOR Reformed and €STR / EuroSTR
(EMMI) and Euro RFR Working Group
expected to
continue
Canada CDOR Expected to CORRA (this rate is Canadian Alternative Reference Rate
continue (but 6M to exist alongside Working Group (CARR)
and 12M tenors CDOR)
ceased from 17 May
2021)
Switzerland CHF LIBOR Cessation after 31 SARON The National Working Group on Swiss
December 2021 Franc Reference Rates
Australia BBSW Reformed (and to RBA Cash Rate Australian Financial Markets
continue) (AONIA) (existing Association
alongside BBSW)
New Zealand BKBM Reformed (and to RBNZ Cash Rate New Zealand Financial Markets
continue) (NZONIA) (existing Association
alongside BKBM)
Hong Kong HIBOR Reformed (and to HONIA (this rate to Treasury Markets Association’s
continue) exist alongside Market Practices Committee
HIBOR)
India MIFOR Cessation after Modified MIFOR* Financial Benchmarks India Pvt Ltd
30 June 2023
Singapore SOR Cessation after SORA* Steering Committee for SOR
30 June 2023 Transition to SORA
Thailand THBFIX Cessation after THOR* Steering Committee on Commercial
30 June 2023 Banks’ Preparedness on LIBOR
Discontinuation
Philippines PHIREF Cessation after PHIREF 1.5^ Bankers Association of the Philippines
30 June 2023
Malaysia KLIBOR Expected to MYOR Financial Markets Committee
continue (but 2M
and 12M tenors to
cease from 1
January 2023)
Subject to the continued publication of non-representative, synthetic 1M, 3M and 6M settings.
* Modified MIFOR, SORA and THOR will not be implemented as the contractual fallback rates.
^ Bankers Association of the Philippines will only provide PHIREF 1.5 rates for the Overnight, 1, 3 and 6-Month tenors.
These FAQs are not intended to be, and should not be relied upon, as a representation, warranty or other assurance or as financial, legal, tax,
accounting or other advice. These FAQs are not intended to be comprehensive and material developments may have occurred since they were
last updated. These FAQs were first prepared prior to the date indicated above and may not have been updated to reflect recent market
developments. They contain information on IBOR and benchmark reform that is intended for the use of Citi clients only and should not be shared
with third parties. The information these FAQs contain is general and does not constitute advice. Citi accepts no responsibility or liability to you
with respect to the use of these FAQs or their contents. If you have questions in relation to the contents of these FAQs, you should consider
seeking independent professional advice (legal, tax, accounting, financial or other) as appropriate.
128. Are there forward-looking term RFRs and, if so, when will these be introduced?
As LIBOR and other IBORs are forward-looking term rates available in a number of tenors, a number
of industry working groups have indicated a desire to develop forward-looking RFR-derived term
rates. The FSB has emphasized that there are limitations to RFR-derived term rates which may mean
they are not a suitable choice in some markets4. It is not yet certain how the market will respond to
them more broadly5.
By way of example:
In Japan, the Cross-Industry Committee on Japanese Yen Interest rate Benchmarks
determined in February 2020 that QUICK Corp (“QUICK”) was a suitable entity to calculate
and publish prototype term rates based on the JPY overnight index swap rate and on 26 May
2021, the Bank of Japan announced the publication of the prototype Tokyo Term Risk-Free
Rate (TORF) by QUICK. On 25 August 2021, ISDA published Supplement 83 to the 2006 ISDA
Definitions to include a definition of JPY-TORF-QUICK.
In the UK, the FMSB, the FCA and the Bank of England Sterling Risk-Free Rate Working Group
(“RFRWG”) have made it clear that they expect the use of forward-looking Term SONIA
reference rates (“TSRRs”) to be relatively limited. Their expectation is that markets should
predominantly transition to SONIA compounded in arrears as part of the move away from
LIBOR on the basis that “overnight risk-free rates provide the most robust benchmark interest
rate available, derived from markets that have remained active and reliable through times of
stress”. Nevertheless, the RFRWG has acknowledged that for some market participants in
cash products there will be a need for a TSRR to support the transition of certain legacy
contracts, together with suitable derivatives to hedge those products as necessary. On 11
January 2021 ICE Benchmark Administration and Refinitiv started publishing live their
respective TSRRs and on 4 August 2021 ISDA published Supplement 81 to the 2006 ISDA
Definitions to include definitions of “GBP-SONIA ICE Term” and “GBP-SONIA Refinitiv
Term”. The RFRWG’s Term Rate Use Case Task Force has also published comparative detail
on the IBA and Refinitiv TSRRs (here).
The National Working Group on Swiss Franc Reference Rates do not recommend the use of a
forward-looking term RFR.
In the US, the CME Group first published 1M, 3M and 6M tenors of the SOFR Term reference
rate (“CME Term SOFR”) on 21 April 2021, with further detail available in their FAQs and
IOSCO Compliance Statement. Subsequently on 21 July 2021, the ARRC published its
conventions and use cases for CME Term SOFR, and on 29 July 2021 determined that there
was sufficient SOFR liquidity and growth in the cash and derivatives markets to recommend
CME Term SOFR. For derivatives, the ARRC provided limitations on the use of CME Term
SOFR, restricted to end-users facing derivatives intended to hedge cash products that
4
FSB Interest rate benchmark reform – overnight risk-free rates and term rates (12 July 2018) at:
https://www.fsb.org/wp-content/uploads/P120718.pdf
5
FSB Progress Report on Reforming major interest rate benchmarks (20 November 2020) at:
https://www.fsb.org/wp-content/uploads/P191120.pdf
These FAQs are not intended to be, and should not be relied upon, as a representation, warranty or other assurance or as financial, legal, tax,
accounting or other advice. These FAQs are not intended to be comprehensive and material developments may have occurred since they were
last updated. These FAQs were first prepared prior to the date indicated above and may not have been updated to reflect recent market
developments. They contain information on IBOR and benchmark reform that is intended for the use of Citi clients only and should not be shared
with third parties. The information these FAQs contain is general and does not constitute advice. Citi accepts no responsibility or liability to you
with respect to the use of these FAQs or their contents. If you have questions in relation to the contents of these FAQs, you should consider
seeking independent professional advice (legal, tax, accounting, financial or other) as appropriate.
13reference CME Term SOFR. On 8 September 2021, ISDA published Supplement 84 to the 2006
ISDA Definitions to include a definition of CME Term SOFR.
9. What type of RFR products is Citi currently offering?
Citi is a liquidity provider for certain new and existing RFRs and can offer portfolio transitions if you
wish to transition your LIBOR portfolio into new RFRs and/or can transact directly with you using RFRs.
If you are interested in these products, please reach out to iborq@citi.com or your Citibank
representative for product availability and timelines for transition.
CREDIT SENSITIVE RATES
10. What type of credit sensitive rates are available?
Bloomberg has created the Bloomberg Short Term Bank Yield Index (“BSBY”) which measures
the weighted average yields at which investors are willing to lend to a list of global systemically
important banks on a senior, unsecured basis for various tenors.
ICE Benchmark Administration (“IBA”) has created the ICE Bank Yield Index (“IBYI”) which
measures the average yields at which investors are willing to lend to large, internationally active
banks on a wholesale, unsecured basis for various tenors.
The American Financial Exchange created AMERIBOR which reflects volume-weighted average
borrowing costs of small, medium, and regional banks across the US.
IHS Markit has created the Credit Inclusive Term Rate (“CRITR”) and USD Credit Inclusive Term
Spread (“CRITS”) which are both a series of forward-looking dynamic term rates that measure
the daily USD cost of funding in institutional markets.
Citi continues to monitor development and adoption of credit sensitive rates.
11. How do credit sensitive rates differ from Term SOFR?
In 2017 the Alternative Reference Rates Committee (“ARRC”), a group of private-sector financial
market participants convened by the Federal Reserve with support from other U.S. financial
regulators, selected the Secured Overnight Financing Rate (“SOFR”) as the recommended
replacement for USD LIBOR. Unlike LIBOR, which is reported daily for a variety of tenors ranging
from overnight to one year, SOFR is an overnight rate.
While LIBOR rates are determined by a mix of limited interbank transaction data and various
judgmental approaches, forward-looking term SOFR rates can be derived from transaction prices for
SOFR futures contracts.
These FAQs are not intended to be, and should not be relied upon, as a representation, warranty or other assurance or as financial, legal, tax,
accounting or other advice. These FAQs are not intended to be comprehensive and material developments may have occurred since they were
last updated. These FAQs were first prepared prior to the date indicated above and may not have been updated to reflect recent market
developments. They contain information on IBOR and benchmark reform that is intended for the use of Citi clients only and should not be shared
with third parties. The information these FAQs contain is general and does not constitute advice. Citi accepts no responsibility or liability to you
with respect to the use of these FAQs or their contents. If you have questions in relation to the contents of these FAQs, you should consider
seeking independent professional advice (legal, tax, accounting, financial or other) as appropriate.
14Term SOFR reference rates provide an indicative, forward-looking measurement of SOFR rates,
based on observable transactions in the US Treasury repo market, and are intended to represent a
robust risk-free interest rates. Term SOFR does not therefore include an inbuilt credit-sensitive
component.
By contrast credit sensitive rates are based on transactions involving instruments used by banks to
fund themselves and therefore include a systemic credit spread in the rate.
12. What are the key market developments regarding the use of credit sensitive rates?
While derivatives market participants are generally adopting backward looking, compounded risk-
free rates as a fallback to LIBOR based rates, there has been some demand for credit-sensitive rates.
The demand for credit sensitive rates comes in part from users who view them as a more accurate
measure of bank funding costs than risk-free rates like SOFR. During periods of economic stress,
investors may rush to “safe havens” such as US Treasuries, driving yields and repo rates lower. At
the same time the banks’ wholesale funding costs may actually increase due to concerns regarding
the credit health of the banking system. As SOFR is based on secured repo transactions, using it as a
benchmark for loans can potentially create a significant mismatch between the rate banks earn on
those loans and their costs of borrowing.
13. Have regulators raised any concerns with the use of credit sensitive rates?
A number of regulators globally have urged caution against the use of so called “credit sensitive rates”
which might be vulnerable to some of the same perceived weaknesses as LIBOR.. Both the Governor
of the Bank of England, Andrew Bailey, and the Chair of the SEC, Gary Gensler, have highlighted
concerns around use of these rates as replacements for LIBOR, as has IOSCO in its recent Statement
on Credit Sensitive Rates. One of the principal concerns raised by these regulators is that by
substituting expert judgment for rates based on executable quotes and transaction data, these rates
may continue some of the issues inherent with LIBOR, including by making markets increasingly
dependent on data from a relatively small number of actual transactions, particularly in times of
stress.
This concern was reiterated recently by Edwin Schooling Latter, Director of Markets and Wholesale
Policy at the UK FCA on the 5th July 2021 in a speech where he raised concerns that credit sensitive
rates are ‘liquidity sensitive’ rather than ‘credit sensitive’ and share certain flaws with LIBOR because
they are derived largely from transactions in commercial paper and certificate of deposit markets. The
speech highlighted that in contrast to SOFR and SONIA, liquidity in these markets has not proved
immune to stress, especially when liquidity in CP markets dries up and yields spike. The FCA warned
that, “because of this we would be concerned about significant use of such rates in UK markets. It is
hard to see how it would be suitable to use them in products aimed at less sophisticated borrowers
who might not understand the complex and relatively opaque risks they present. We ask that any
regulated UK market participants looking to use these so-called 'credit sensitive' rates in UK-based
business consider the risks carefully, and raise with their FCA supervisors before doing so.”
These FAQs are not intended to be, and should not be relied upon, as a representation, warranty or other assurance or as financial, legal, tax,
accounting or other advice. These FAQs are not intended to be comprehensive and material developments may have occurred since they were
last updated. These FAQs were first prepared prior to the date indicated above and may not have been updated to reflect recent market
developments. They contain information on IBOR and benchmark reform that is intended for the use of Citi clients only and should not be shared
with third parties. The information these FAQs contain is general and does not constitute advice. Citi accepts no responsibility or liability to you
with respect to the use of these FAQs or their contents. If you have questions in relation to the contents of these FAQs, you should consider
seeking independent professional advice (legal, tax, accounting, financial or other) as appropriate.
15FURTHER BENCHMARK REFORM
14. What is happening to the Euro Overnight Index Average (“EONIA”)?
EONIA is the current overnight benchmark rate for the Euro and the methodology for calculating
EONIA has been reviewed by the Working Group on Euro Risk Free Rates to ensure its compliance
with the EU Benchmarks Regulation (“EU BMR”)6. Following its review and a broad public
consultation, the working group recommended that market participants gradually replace EONIA with
the new Euro short-term rate (“EuroSTR”), which became available on 2 October 2019.
Until 2 October 2019, EONIA was calculated by the European Central Bank (“ECB”) and administered
by the European Money Markets Institute (“EMMI”) as a weighted average of the interest rates on
overnight unsecured lending between banks.
Since 2 October 2019, the date on which the EuroSTR became available, EONIA is determined as
EuroSTR plus a fixed spread of 8.5 basis points (“bps”). The spread of 8.5bps was determined by the
ECB as a result of a simple average of the daily spread between EONIA and ‘pre-EuroSTR’ between 17
April 2018 and 16 April 2019, with a 15% trimming mechanism, and published to the market on 31
May 2019. This methodology is expected to continue until EONIA is no longer published and EMMI
has announced that it plans to discontinue its publication of EONIA from 3 January 20227.
According to EMMI, the recalibrated EONIA under its new methodology will continue to measure the
same underlying interest as the former EONIA calculated under its legacy methodology.
For further information, please see ECB - Spread between EuroSTR and EONIA and Report by the
Working Group on Euro Risk-Free Rates on the transition from EONIA's cash and derivatives markets
liquidity to EuroSTR.
15. Are EONIA and EuroSTR comparable rates?
EONIA, prior to its change in methodology, relied on transactions from the euro-denominated
overnight unsecured money market sector and this is also the case for EuroSTR. However, the rates
have several characteristics which differ, some of which include the following:
EONIA is administered by the private sector via EMMI, while EuroSTR is administered by the
ECB.
6
Regulation (EU) 2016/1011 of the European Parliament and of the Council on indices used as benchmarks in
financial instruments and financial contracts or to measure the performance of investment funds and amending
Directives 2008/48/EC and 2014/17/EU and Regulation (EU) No 596/2014
7
EMMI, EURIBOR questions and answers (2019)
These FAQs are not intended to be, and should not be relied upon, as a representation, warranty or other assurance or as financial, legal, tax,
accounting or other advice. These FAQs are not intended to be comprehensive and material developments may have occurred since they were
last updated. These FAQs were first prepared prior to the date indicated above and may not have been updated to reflect recent market
developments. They contain information on IBOR and benchmark reform that is intended for the use of Citi clients only and should not be shared
with third parties. The information these FAQs contain is general and does not constitute advice. Citi accepts no responsibility or liability to you
with respect to the use of these FAQs or their contents. If you have questions in relation to the contents of these FAQs, you should consider
seeking independent professional advice (legal, tax, accounting, financial or other) as appropriate.
16 EONIA relied on voluntary lending data input from 28 panel banks (with one contribution per
bank) while EuroSTR is derived from daily data submissions from 50 panel banks reporting
borrowing transactions of over €1 million in accordance with the MMSR Regulation.
EONIA was calculated on the basis of a weighted average of the submissions from its panel
banks while EuroSTR relies on data from individual transactions, computed using 25%
trimming.
EONIA was previously published at or shortly after 19.00 CET on each trade date, whereas
EuroSTR is now published at or shortly after 08:00 CET on each TARGET2 business day on a
T+1 basis, based on arm’s length transactions conducted and settled on the previous day, with
the reformed EONIA published at or shortly after 09:15 CET, also on a T+1 basis.
16. How will the change to EuroSTR affect legacy EONIA contracts?
As EONIA will be discontinued from 3 January 2022, Citi is participating in relevant industry working
groups relating to the transition to EuroSTR and is reviewing its existing population of transactions
and credit support documentation referencing EONIA.
ISDA has produced a template form of amendment agreement which enables parties to amend one
or more existing confirmations, existing credit support documents or existing master agreements to
update references to EONIA in light of the anticipated permanent cessation of EONIA on 3 January
2022. Additionally, in February 2020 (as superseded by a later version in August 2020) ISDA published
standardised definitions for use in collateral documentation (initially to include definitions of EONIA
and EuroSTR). In October 2019, ISDA published Supplements 59 and 60 to the 2006 ISDA Definitions
to update a number of floating rate options referencing EONIA to include fallback language to EuroSTR
and to introduce a new EuroSTR floating rate option and, in July 2021, ISDA published Supplement 77
which updates the new EuroSTR floating rate option. We understand that other industry associations
are working on producing similar documentation.
On 18 August 2021, the ISDA 2021 EONIA Collateral Agreement Fallback Protocol was published,
which provides market participants with an efficient way to amend the terms of certain ISDA collateral
agreements to incorporate a fallback to EuroSTR plus 8.5 basis points upon the cessation of EONIA.
The EONIA Protocol is now open for adherence and Citi has adhered. Following mutual adherence by
relevant parties, in-scope collateral agreements between the parties would be amended to include
the new EONIA fallback language. However, the consequences of those amendments i.e. the
triggering of fallback provisions causing such in-scope collateral agreements to transition from EONIA
to EuroSTR plus 8.5 basis points, would only occur following the cessation of EONIA. Please see the
EONIA Protocol FAQs for more information.
Please contact iborq@citi.com if you would like to discuss this matter further, and the potential timing
and related calculations and payments that might be required.
These FAQs are not intended to be, and should not be relied upon, as a representation, warranty or other assurance or as financial, legal, tax,
accounting or other advice. These FAQs are not intended to be comprehensive and material developments may have occurred since they were
last updated. These FAQs were first prepared prior to the date indicated above and may not have been updated to reflect recent market
developments. They contain information on IBOR and benchmark reform that is intended for the use of Citi clients only and should not be shared
with third parties. The information these FAQs contain is general and does not constitute advice. Citi accepts no responsibility or liability to you
with respect to the use of these FAQs or their contents. If you have questions in relation to the contents of these FAQs, you should consider
seeking independent professional advice (legal, tax, accounting, financial or other) as appropriate.
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