LIBOR'S LONG GOODBYE - TRANSACTIONAL POWERHOUSE - READINESS FOR LIBOR TRANSITION - BAKER MCKENZIE
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LIBOR’S LONG GOODBYE
Readiness for LIBOR transition
TRANSACTIONAL
POWERHOUSE
1
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Introduction
As has been noted in a continuous drumbeat of warnings from major
global, regional and local regulatory bodies, LIBOR is expected to go away
at the end of 2021, when the UK Financial Conduct Authority (FCA) has
announced it will withdraw support for the rate.
This deadline was first announced This report also includes a matrix written, in each case that mature
in a speech by Andrew Bailey, chief showing an assessment of readiness after 2021. The official sector
executive of the FCA, in July 2017. for transition by currency and product of regulators and central banks
Since more than half of the roughly type. As we’ve noted previously, continues to stress the need to
four-and-a-half-year-period that that LIBOR transition is at different develop robust alternative reference
speech gave until the deadline has stages of progress in different rates and robust contractual fallbacks
now elapsed, it is perhaps fitting to jurisdictions and with respect to in the event that LIBOR were to
consider how far markets have come different financial products. cease or become unrepresentative
in LIBOR transition, and how much of underlying financial reality, and to
further they need to go. LIBOR transition remains a transition to such alternative rates.
fundamental issue confronting Despite the uncertainty that exists, the
This report assesses the state of financial markets. To date, transition FCA has stated firmly that the end-2021
readiness for transition from LIBOR has been slower than regulators deadline remains in effect, a statement
(and other interbank offered rates would like, and considerable it reiterated on 25 March 2020 in
(IBORs)) to alternative interest rates uncertainty still exists (and may response to the Covid-19 pandemic.
in the jurisdictions of each LIBOR well remain for some time). Time
currency (and select other jurisdictions) is growing shorter until the end of
with respect to derivatives, loans, 2021, yet a large number of legacy
bonds and securitizations. contracts still refer to LIBOR, and
new LIBOR contracts are still being
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Contents
04 | FSB 2019 Progress Report 20 | Remaining Challenges
05 | Adoption of RFRs in 22 | IBOR Transition
LIBOR currencies Readiness Matrix
06 | Lack of IOSCO-compliant forward 25 | IBOR Jurisdiction
term rates derived from RFRs
25 | UK/Sterling/SONIA
08 | Multiple-rate jurisdictions
26 | US/USD/SOFR
09 | Development of market
conventions and information 28 | Euro zone/euro/€STR
10 | Legacy agreements 29 | Japan/Yen/TONA
12 | Derivatives 30 | Switzerland/CHF/SARON
15 | Enhanced scrutiny 31 | Australia/A$/AONIA
16 | Conduct and litigation risk 32 | Canada/C$/CORRA
18 | Key upcoming developments 33 | Hong Kong/HK$/HONIA
and potential developments
34 | Singapore/S$/SORA
36 | Contacts
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FSB 2019
Progress Report
In December 2019, the Financial Stability Board (FSB) stated that there
had been “good progress” towards LIBOR transition in many derivatives
and securities markets
“but progress in lending markets has demonstrating how quickly these It may also be necessary to
been slower, and needs to accelerate. important changes can take place upgrade systems to support use of
A wide range of new products based once the necessary conditions are compounded RFRs in these markets.”1.
on . . . [risk-free rates (RFRs)] has been established. Further foundational
developed during 2019, while volumes steps such as raising awareness The FSB stressed that LIBOR transition
in existing products have continued of the need for transition across a “now needs to accelerate, particularly
to grow. Use of compounded RFRs wider range of cash market users in lending and securitisation markets.”
has rapidly become the market are required to support transition in
standard for new issuance of floating lending markets and will need to be
rate securities in some markets, prioritised in the coming year.
1.
FSB, Reforming major interest rate benchmarks, Progress report, December 2019.
4
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Adoption of RFRs
in LIBOR currencies
Overnight RFRs have been identified for each LIBOR currency (and for the
currencies of many other significant IBORs). Market participants can trade
in overnight RFRs in each LIBOR currency now.
Further, there now exist futures according to ISDA, aggregate SOFR For 2019, aggregate SARON traded
contracts on exchanges for the RFRs traded notional was $392.7 billion, notional was $25.6 billion. Aggregate
for Dollars, Sterling, euro and Swiss compared to aggregate traded traded notional for CHF LIBOR for
Francs, SOFR, SONIA, €STR and SARON. notional USD LIBOR of $119 trillion. such period was $618.2 billion.6.
The amount of liquidity in these Aggregate trading volume for SOFR
markets varies by currency. futures was $30.8 trillion for the year.2. Despite growth in RFR interest rate
derivatives, ISDA stated that “RFR
According to the FSB report, the Cleared swaps volumes in €STR, TONA transactions continued to comprise
aggregate market for cleared swaps (the RFR for Yen) and SARON lag their a small percentage of total IRD
in SONIA is “broadly equivalent to LIBOR counterparts by more.3. trading activity, accounting for 3.4%
that linked to LIBOR, with SONIA of IRD traded notional [in each of
starting to dominate at shorter €STR is, of course, the relative 2018 and 2019].”
maturities . . . . The share of futures newcomer here, having only been
referencing SONIA stands at around published since 2 October 2019. For There is evidence that market
7% of total sterling futures volumes.” 2019, aggregate €STR traded notional participants consider swaps
For 2019, aggregate SONIA traded was $4.6 billion. Aggregate traded and derivatives markets for RFR
notional was $8 trillion, according to notional for EUR LIBOR and EURIBOR alternatives in many LIBOR currencies
ISDA, compared to aggregate traded for such period was $1.1 billion and to be immature (perhaps with the
notional GBP LIBOR of $10.3 trillion. $22.9 trillion, respectively.4. sole exception of SONIA), and that
Aggregate trading volume for SONIA LIBOR transition will require not
futures was $8.7 trillion for the year. For 2019, aggregate TONA traded only a shift in swaps from LIBOR to
notional was $249.8 billion. RFRs but also the development of
The aggregate market for cleared Aggregate traded notional for JPY robust futures markets for RFRs.7.
swaps in SOFR is much smaller LIBOR and TIBOR/Euroyen TIBOR for More particularly, market participants
relative to the market for cleared such period was $3.985 trillion and are working to understand volatility
swaps in USD LIBOR. For 2019, $10.5 billion, respectively.5. spikes in SOFR that occurred in 2019.8.
2.
ISDA, Interest Rate Benchmarks Review: Full Year 2019 and the Fourth Quarter of 2019.
3.
ISDA, Interest Rate Benchmarks Review: Full Year 2019 and the Fourth Quarter of 2019.
4.
ISDA, Interest Rate Benchmarks Review: Full Year 2019 and the Fourth Quarter of 2019.
5.
ISDA, Interest Rate Benchmarks Review: Full Year 2019 and the Fourth Quarter of 2019.
6.
ISDA, Interest Rate Benchmarks Review: Full Year 2019 and the Fourth Quarter of 2019.
7.
See, e.g., “Banks Build New Tools to Shift Short-Term Borrowing,” Wall Street Journal, 26 January 2020.
8.
See, e.g., “September stress in dollar repo markets: passing or structural?”, BIS Quarterly Review December 2019; “Central
Bank Group’s Report Points to Deeper Problems in Repo Market,” Wall Street Journal, 11 December 2019; “Cash-Market
Volatility Adds to Worries Facing Libor Replacement,” Wall Street Journal, 30 October 2019; “The Benchmark Set to Replace
Libor Suffers Volatility Spike,” Wall Street Journal, 11 February 2019; and “After repo rates spike, leveraged loan investors raise
concern about SOFR volatility,” S&P Global Market Intelligence, 26 September 2019.
5
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Lack of IOSCO-compliant forward
term rates derived from RFRs
To date, no forward term rate derived from an RFR has been determined
to comply with the IOSCO principles for benchmarks.
These principles are reflected in the attention to overnight RFR LIBOR would emerge may have led some firms
EU Benchmarks Regulation (BMR) replacements compounded in arrears to delay action in the loan markets.
and include standards for robustness and the development of commercial
and transparency, as well as a marked conventions to address these rates The LMA has published exposure
preference for pricing information in transactions. Many SONIA and drafts of facility agreements for
derived from actual transactions. SOFR floating rate notes (FRNs) use SONIA and SOFR compounded
Regulators have urged firms not to compounded RFRs in arrears, and in arrears, and the LTSA has
wait for these rates before transition. there have been some USD and published two concept credit
Sterling securitizations that refer to agreements referencing SOFR in
In the LIBOR jurisdictions, compliant these rates. arrears, one compounded and one
forward term rates may emerge simple average.9. In a noteworthy
from transaction data in OIS and Loan transactions have been slower transaction, Royal Dutch Shell
futures markets after such markets to use RFRs in arrears. Among the announced that it had entered into
develop sufficient volume and depth reasons for this seem to be lack of a syndicated USD 10 billion revolving
(including as to longer maturities). borrower demand (borrowers like credit facility where LIBOR will be
being able to set rates in advance, as replaced by SOFR as early as the first
Because SONIA has existed since 1997 they can for LIBOR), and that screen anniversary of closing.10. In addition,
and has a relatively mature trading rates do not yet exist. Additionally, British American Tobacco announced
market, a compliant SONIA term rate some lenders do not currently have that it had executed a new £6 billion
may exist before such a rate exists for in place systems to support RFRs, multi-currency revolving credit
any other LIBOR currency. and many borrowers do not have facility linked to both SOFR and
corresponding treasury management SONIA.11.
Markets are coming to grips with the systems. For multicurrency facilities,
possibility that no IOSCO-compliant, the issue is further complicated
RFR-derived forward term rate for by differences in IBOR transition
any LIBOR currency may exist at the between jurisdictions.
time that LIBOR is expected to cease An expectation (once held and now
at the end of 2021, and are turning frustrated) that forward term rates
6
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Some regulators (including the FSB’s likely operationally achievable for The OSSG has also suggested that,
Official Sector Steering Group (OSSG)) approximately 90% of the total value over time, liquidity would likely
have expressed the view that use of the Sterling LIBOR loan market, concentrate in markets that focused
cases for forward term rates should and that the remaining 10% would on overnight RFRs, and that markets
be limited.12. The Working Group on likely require a term rate or other that currently used term rates
Sterling Risk-Free Reference Rates rate. Loans for sponsors and large and might well migrate to the overnight
(Sterling Working Group) has stated medium-sized corporates are within markets for pricing reasons, since
that the use case for a forward term the 90%. Trade and export finance, the concentrated liquidity might
SONIA rate should be limited relative which often use discounting, and well result in tighter spreads. The
to the use case for compounded Islamic finance were among the types amount of liquidity in forward
SONIA in arrears.13. The Sterling of transactions the Sterling Working term rates based on overnight RFRs
Working Group expressed the view Group viewed as having a use case for would necessarily be less than in the
that the use of SONIA compounded a term SONIA rate. overnight RFRs themselves.14.
in arrears was appropriate and
9.
S ee LMA documents here and LSTA documents here and here.
10.
See here.
British American Tobacco, news release 12 March 2020, British American Tobacco signs £6 billion SONIA and SOFR linked
11
revolving credit facility.
12.
See FSB OSSG, Interest rate benchmark reform – overnight risk-free rates and term rates, 12 July 2018. In this report, the OSSG
emphasized that the use of overnight RFRs by the derivatives markets was important to achieve financial stability. The OSSG
recognized that in some cases the benefit of fixing the interest rate at the beginning of the period over which interest is paid
using a forward-looking term rate might outweigh the cost savings and other benefits of using an overnight RFR. However,
the OSSG expressed the view that the use of such forward-looking term rates would ideally be “more limited” than the current
use of IBORs, “relatively narrow compared with current use of IBORs” and “largely concentrated in a segment of the cash
rather than derivative markets” in order to be compatible with global financial stability.
13.
Sterling Working Group, Use Cases of Benchmark Rates: Compounded in Arrears, Term Rate and Further Alternatives.
14.
See FSB OSSG, Interest rate benchmark reform – overnight risk-free rates and term rates, 12 July 2018.
7
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Multiple-rate
jurisdictions
With respect to euro and Yen, local authorities have not determined that
a transition solely to RFRs is necessary,
and have gone forward with a While the non-LIBOR IBORs in the In the jurisdictions that have adopted
multiple rate approach under which multiple-rate jurisdictions may multiple-rate approaches, there is
non-LIBOR IBORs for such currencies, provide viable forward term rate some expectation that, in the long
EURIBOR, TIBOR and Euroyen TIBOR options, local regulators will continue run, an RFR-derived term rate may
(in each case, reformed to meet new to examine them to see whether prove to be more robust than a
benchmark criteria) exist as forward such rates (even as they have been legacy reformed IBOR. However, this
term rates alongside the RFRs (and are reformed) continue to be rooted in will depend on the development of
intended to exist alongside any RFR- a sufficient volume of transactions such RFR-derived rates. Additional
derived term rate that may emerge) in active, liquid underlying markets challenges may also arise for
for such currencies. Several non- to reflect underlying financial participants in those jurisdictions due
LIBOR jurisdictions have taken similar reality and qualify under the IOSCO to potentially different types of bases
approaches. The attached matrix benchmark principles. for cross-currency swap transactions.
considers several of them, including
Australia, Canada and Hong Kong.
In its response to a consultation, JBA TIBOR Administration, the administrator of TIBOR and Euroyen TIBOR, stated that
15.
it was likely that Euroyen TIBOR would be discontinued (and that TIBOR would be retained). JBA TIBOR Administration,
Result of public consultation: 1st Consultative Document / Approach for Integrating Japanese Yen TIBOR and Euroyen
TIBOR 30 May 2019
8
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Development of market
conventions and information
During 2020, several developments are expected that may spur
market activity.
Market conventions for RFRs for new interdealer cross-currency Bloomberg is expected to publish
calculated in arrears (whether basis swaps that use SOFR and indicative adjusted RFRs, spread
compounded or simple average) overnight RFRs in certain other adjustments and “all-in” fallback rates
continue to develop, particularly in jurisdictions.18. The conventions focus (the combination of the adjusted RFR
the loan markets; to date, the lack on interdealer transactions and are and the spread adjustment) for each
of established conventions has likely for market participants’ voluntary relevant IBOR tenor at some point
contributed to the relative lack of use. Conventions for both RFR-RFR during the first half of 2020.
syndicated facility agreements that cross-currency swaps and RFR-IBOR
refer to such rates (although there cross-currency swaps are covered. In The Federal Reserve Bank of New York
are some bilateral facilities16.). To the addition, there are potential fallbacks recently began publishing: (i) three
extent that the markets coalesce for cross-currency swaps currently compounded averages of SOFR with
around standard conventions, activity referencing IBORs, to cover one or tenors of 30, 90 and 180 days; and
may increase. both counterparties in an IBOR-based (ii) a daily SOFR index to support the
swap transitioning from an IBOR to calculation of compounded average
There remain differences of opinion an RFR. rates over custom time periods.19. The
over how best to calculate rates Bank of England recently announced
in arrears, whether to use simple In addition, new rate and pricing its intention to publish a SONIA-
average or compounding, and information is expected to become linked index beginning in July 2020.20.
whether to use a lag period or an publicly available, which should The publication of these averages
observation shift.17. provide accessible, consistent and indices should provide important
pricing indices and thereby promote pricing information and reference
In January 2020, the US Alternative transition. ISDA and Bloomberg are points to the market.
Reference Rates Committee (ARRC) expected to finalize methodologies
released final recommendations for swap fallback rates, and
16.
See, e.g., Reuters, “Sonia benchmark makes loan market debut,” 8 July 2019.
See, e.g., Sterling Working Group, Statement on bond market conventions: Use of the SONIA Index and weighting approaches for
17.
observation periods.
18.
ARRC, Recommendations for Interdealer Cross-Currency Swap Market Conventions.
Federal Reserve Bank of New York, Statement Regarding Publication of SOFR Averages and a SOFR Index 12 February 2020;
19.
Statement Introducing the SOFR Averages and Index 2 March 2020.
20.
Turbo-charging sterling LIBOR transition: why 2020 is the year for action – and what the Bank of England is doing to help, Speech
given by Andrew Hauser, Executive Director, Markets, Bank of England, at International Swaps and Derivatives Association/SIFMA
Asset Management Group Benchmark Strategies Forum, 26 February 2020. Relatedly, the Bank of England (BofE) also published a
discussion paper seeking views from market participants on: (i) the BofE’s intention to publish a daily SONIA compounded index;
and (ii) the usefulness of the BofE publishing a simple set of compounded SONIA period averages, which would give users easy
access to SONIA interest rates compounded over a range of set time periods. Responses to the questions are due by 9 April 2020.
BofE, Supporting Risk-Free Rate transition through the provision of compounded SONIA February 2020.
9
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Legacy
agreements
Perhaps the biggest remaining issue is the conversion of legacy LIBOR
instruments to alternative rates.
Researchers at the Bank of 2006 ISDA Definitions and entered emerge there, and issuers will need to
International Settlements (BIS) into before that date. ISDA also instead refinance current LIBOR FRNs
estimated that, as of mid-2018, there proposes to publish the ISDA 2020 with SOFR FRNs. Despite FRNs often
was about USD 400 trillion worth of IBOR Fallbacks Protocol (Protocol), a having relatively short maturities,
financial contracts that referred to multilateral protocol that will enable there seem to be some legacy FRNs
LIBOR.21. At a roundtable convened parties to derivatives transactions outstanding that mature after 2021
by the FSB in July 2019, private to agree that the new IBOR triggers and have fallback provisions that
sector representatives stated that and fallback provisions as set out in revert to a fixed rate (the last quoted
dealing with legacy positions was the revised 2006 ISDA Definitions will LIBOR rate), rather than having a
more problematic than writing new apply to legacy transactions between more robust fallback.24.
business referring to RFRs. As noted Protocol adherents that incorporate
above, market receptivity to LIBOR the 2006 ISDA Definitions, the In the loan markets, there has
alternatives varies by market. 2000 ISDA Definitions or the 1991 been some success in inserting
ISDA Definitions, and in existing robust LIBOR fallback provisions. In
ISDA proposes to publish a substantial ISDA Master Agreements and ISDA most cases, these would trigger a
revision to the 2006 ISDA Definitions collateral support documentation, negotiation for an amendment that
by way of a Supplement that as well as certain non-ISDA could be passed without a 100%
contains fallback provisions applying documentation, that refer to a lender vote.
the applicable term-adjusted RFR plus relevant IBOR.22.
a spread in the event of a permanent The LMA has published an exposure
cessation of 11 key IBORs: LIBOR In the Sterling FRN markets, to date, draft of a reference rate selection
(for each LIBOR currency), EURIBOR, eight consent solicitations with a agreement25. with the aim to
TIBOR, Euroyen TIBOR, BBSW, total nominal value of GBP 4.2 billion streamline the amendment process
CDOR and HIBOR. These revised have been announced publicly as for legacy syndicated loans by
definitions will apply by their terms successful in transitioning English allowing the required lenders (and
to transactions referring to the 2006 law legacy bond contracts from borrowers) to agree to the key
ISDA Definitions that are entered LIBOR to SONIA in arrears.23. Because amendment terms, but delegating
into on or after the date on which US FRNs invariably require a 100% agreement of the technical details to
the revisions become effective, but vote to change interest rates, it is the facility agent (and borrowers).
not to transactions incorporating the unlikely that a similar trend will
10
CASE0155238_Report_Print Ready.indd 10 21/07/2020 12:07:39However, there is no avoiding the effecting LIBOR transition, but should Parties could opt out of the statute
need for each and every affected rather focus their efforts on using by contract. Although the Sterling
loan agreement to be amended RFRs instead of LIBOR. Working Group has established a
individually. The Bank of England “tough legacy” sub-committee to
and FCA have also recently endorsed The ARRC recently released a proposal address contracts that are unable to
a target of Q1 2021 for lenders to for legislation under New York law convert away from Sterling LIBOR
“significantly reduce the stock of that would address LIBOR transition.27. by market solutions, the FCA has
LIBOR referencing contracts.”26. This proposal would apply chiefly been clear that the market should
to situations where a fallback from transition and not rely on a possible
Regulators have cautioned that LIBOR did not exist in a contract, legislative fix.28.
market participants should not view or fell back to a LIBOR-based rate
fallbacks as the primary means of (such as the last quoted LIBOR).
21..
Beyond LIBOR: a primer on the new benchmark rates, BIS Quarterly Review, March 2019.
We note that the ARRC Market Structures Working Group has identified nine possible models of conversion that market
22.
participants may use when voluntarily transitioning derivatives transactions that reference IBORs to RFRs. See Letter to J.
Christopher Giancarlo, chair of US CFTC, Re: Follow-up Letter Regarding Treatment of Derivatives Contracts Referencing the
Alternative Risk-Free Rates, 13 May 2019.
23.
Sterling Working Group, Progress on the Transition of LIBOR Referencing Legacy Bonds to SONIA By Way Of Consent Solicitation
24.
ICMA, The transition to risk-free rates in the bond market, ICMA Quarterly Report, first quarter 2020.
25.
Available here.
26.
See here
ARRC, Proposed Legislative Solution to Minimize Legal Uncertainty and Adverse Economic Impact Associated with LIBOR
27.
Transition. We note that Jerome Powell, the chair of the US Fed, has expressed the view that a US federal legislative solution
was not necessary at the present time. Law 360, Fed Chair Throws Cold Water On Libor Legislation Idea, 11 February 2020.
28.
See, e.g., LIBOR: Preparing for the end, speech by Andrew Bailey, Chief Executive of the FCA, at the SIFMA LIBOR Transition
Briefing, 15 July 2019: “Market participants will also ask whether legislation could help. For example, could legislators
redefine LIBOR as RFRs plus fixed spreads for those tough legacy contracts? Or could they create safe harbours for those
adopting consensus industry solutions which enjoy authorities’ support such as compounded RFRs and fixed spreads? These
measures are not in the gift of regulators, but it is sensible to consider their pros and cons.
11
CASE0155238_Report_Print Ready.indd 11 21/07/2020 12:07:39Derivatives
Fallback rates based on RFRs have been identified for the relevant IBORs
by ISDA industry working groups. The transition to RFRs is happening
across all major currencies, although the process and amount of progress
varies by jurisdiction.29.
ISDA has already published Significant progress has been made New interest rate derivatives
Supplements to the 2006 ISDA by ISDA to prepare the derivatives transactions entered into after the
Definitions including definitions markets for the adoption of RFRs in “big bang” date will incorporate the
for new risk-free rates (such as place of IBORs, but issues remain. amended 2006 ISDA Definitions.
compounded SOFR and €STR). Of Market consensus is still to be If they wish to ensure that both
particular note is the FCA and the achieved with respect to pre- new and legacy IBOR contracts
Bank of England statement published cessation fallbacks. There are also reference the same fallbacks, market
in January 2020 encouraging the issues relating to basis risk for LIBOR participants will need to transition
change of the market convention referenced derivatives linked to, or their legacy trades by adherence to
for Sterling interest rate swaps from hedging a floating rate loan or other the new Protocol.
Sterling LIBOR to SONIA on 2 March debt instrument. Other challenges
2020.30. This is intended to shift include, for example, market However, market acceptance of the
new trading in Sterling interest rate adoption of RFRs (the “chicken- transition of legacy contracts to the
swaps to SONIA and limit risks from and-egg” problem), liquidity of new fallbacks will depend on the
new LIBOR exposures. In addition, RFR-referenced markets, legal issues market having more visibility of the
a top priority identified by the relating to contract amendments, calculations of the adjustments to the
Sterling Working Group is that new issues relating to valuation and risk RFRs and clarity on the regulatory,
issuances of Sterling LIBOR-based management as well as accounting accounting and tax implications
cash products maturing beyond 2021 and tax treatment.32. of the transition. In order to value
cease by the end of the third quarter portfolios and make decisions
of 2020.31. As market participants The proposed Supplement to the as to the timing of transition of
start issuing more cash products that 2006 ISDA Definitions for new existing legacy IBOR transactions
reference SONIA, SOFR and other transactions and the Protocol to RFRs, market participants require
RFRs, it is expected that this will for existing transactions will be information that is not currently
increase market demand for RFR- effective on a “big bang” date to be available. The efficiency of interest
based derivative hedging products. announced. This is currently expected rate risk management is also affected
As the transition away from LIBOR to be approximately three to four by the lack of liquidity in RFRs.
progresses, the focus will move months after the Supplement and Bloomberg Index Services Limited is
towards the practical implementation Protocol have been published by expected to produce and publish the
of new RFR products. ISDA, which is currently expected to compounded setting in arrears rate,
be in the third quarter of 2020. the spread adjustment and the “all-
12
CASE0155238_Report_Print Ready.indd 12 21/07/2020 12:07:39in” fallback rate (i.e., the compounded The largest central counterparties apply in the event that LIBOR is
setting in arrears rate plus the (CCPs) have indicated they will adopt declared unrepresentative, following
spread) in the first half of 2020. The the amended definitions and thereby some clarification from the FCA
publication of these rates will provide achieve an equivalent outcome as and IBA that the publication of a
market participants with more clarity under the new Protocol for their non-representative LIBOR would
on the calculation of the spread legacy cleared portfolios. be limited in duration.35. A pre-
and term adjustments to the RFRs cessation trigger is included in
that would apply to fallback rates, For market participants using interest many fallback provisions for cash
increasing market acceptance and rate derivatives as a hedging tool, products. However, an earlier ISDA
liquidity. Accordingly, the publication a particularly salient issue is the consultation36. did not yield market
of adjusted RFR fallback rates are potential basis risk between the consensus on how to implement
expected to be a significant catalyst derivative and the underlying cash pre-cessation fallbacks in derivatives
for market participants to effect product it hedges, should the agreed contracts. The new consultation is
transition in earnest. fallbacks in the derivatives markets open until 1 April 2020.
differ from those adopted in the
There could be possible distortion market for the underlying product. This new ISDA consultation will ask
in the cross-currency markets if The current ISDA proposals include whether the 2006 ISDA Definitions
the transition to the various RFRs template documentation to exclude should be amended to include
occurred at different times. It transactions from the scope of the fallbacks that would apply on
has been noted that “substantial Protocol at the option of the parties, the first to occur of a permanent
risks could stem from low market thereby affording the parties the cessation of an IBOR or on a pre-
awareness and acceptance of the ability to agree to bespoke fallback cessation event. If there is not
[RFR] benchmarks. In particular, provisions so that the fallback for an sufficient support for this approach,
benchmark reforms in major currency excluded derivative should match ISDA proposes to amend the 2006
areas could affect regional markets that in the related hedged product. ISDA Definitions to enable derivatives
through the use of cross-currency counterparties to incorporate
basis or foreign exchange swap ISDA recently launched a public pre-cessation fallbacks alongside
related products in certain market consultation regarding whether to permanent cessation fallbacks if they
segments, thereby posing potential include a pre-cessation trigger in choose to.
risks to market functioning.”33. the ISDA fallbacks,34. which would
13
CASE0155238_Report_Print Ready.indd 13 21/07/2020 12:07:39The timing of publication of the
New consultation on combination of 25 February 2020
Supplement to the 2006 ISDA
permanent cessation fallbacks and pre-
Definitions and the Protocol will now cessation fallbacks
be subject to the results of the new
consultation. The proposed timing Deadline for consultation responses 25 March 2020
of the consultation, publication
of results and publication of the Publication of consultation results Late April 2020-Early May 2020
Supplement to the 2006 ISDA and announcement of next steps for
implementing permanent cessation and
Definitions and the Protocol are set
pre-cessation fallbacks
out opposite.
Publication of Bloomberg indicative First half of 2020
fallback rates
Publication of final form of Supplement Targeting Q3 2020
to the 2006 ISDA Definitions and of
ISDA 2020 IBOR Fallbacks Protocol
Effectiveness of Supplement to the 3-4 months after publication
2006 ISDA Definitions and of ISDA 2020
IBOR Fallbacks Protocol
29.
ISDA Research Note, Adoption of Risk-Free Rates: Major Developments in 2020 February 2020.
30.
FCA and Bank of England encourage switch from LIBOR to SONIA for sterling interest rate swaps from Spring 2020,
available at: https://www.fca.org.uk/news/statements/fca-and-bank-england-encourage-switch-libor-sonia-sterling-
interest-rate-swaps-spring-2020.
Sterling Working Group 2020 Top Level Priorities.
31.
32.
See, e.g., Study on the Implications of Financial Benchmark Reforms EMEAP Working Group on Financial Markets
September 2019.
33.
Study on the Implications of Financial Benchmark Reforms EMEAP Working Group on Financial Markets September 2019.
34.
ISDA, 2020 Pre-Cessation Fallback Consultation.
35.
See ISDA 4 December 2019 letter to FSB OSSG re: ISDA Pre-Cessation Triggers for Derivatives Fallbacks; November 2019
letter from the OSSG to ISDA regarding pre-cessation triggers; January 2020 letter from FCA to ISDA; and January 2020
letter from the IBA to ISDA.
36.
See here.
14
CASE0155238_Report_Print Ready.indd 14 21/07/2020 12:07:40Enhanced
scrutiny
Many regulatory bodies have
S ee, e.g., the FSB (supra n. 1); the US Office of the Comptroller of the Currency,
37.
indicated that they will actively
Semi-Annual Risk Assessment, December 2019 §§3.3, 6.3; the US Financial Stability
monitor LIBOR transition at regulated
Oversight Council, 2019 Annual Report; the FCA, Conduct risk during LIBOR
institutions in 2020 and will urge such transition and “Dear CEO” letter to asset management firms 27 February 2020;
institutions to accelerate matters.37. and FINMA, FINMA Risk Monitor 2019.
15
CASE0155238_Report_Print Ready.indd 15 21/07/2020 12:07:40Conduct and
litigation risk
When transitioning from LIBOR, product governance and conduct
obligations must be met.
In the UK, at a high level, this provisions that replace LIBOR and, of course, as regards professional
manifests itself in the regulatory are expected to work. As with all investors. To fulfill this duty client facing
obligation on authorized firms communications, those around staff must have adequate knowledge
to treat customers fairly and LIBOR transition should be clear, fair and receive appropriate training.
analogous provisions may apply and not misleading. Additionally,
to other jurisdictions. The FCA has they should be timely, allowing As a corollary, firms should consider
published information to help firms customers sufficient opportunity whether variations of contracts to
in this respect while setting out to make informed decisions. Firms introduce fallbacks or alternative
their regulatory expectations.38. should describe the risks and impacts, rates are fair and lawful. This issue is
The consequences of this duty vary including the benefits and costs of particularly acute where retail clients
depending on whether customers are alternative products. It goes without are concerned. The FCA suggests
market counterparties, professional saying that communications should that firms that can show that a
clients and retail investors — the last not “disguise, reduce or hide” relevant replacement rate represents the
receiving the greatest protection. information. It is essential to consider market consensus, possibly agreed
the knowledge and experience of the though industry working groups and
A key aspect of treating customers intended audience — retail mortgage after consultation, are more likely
fairly is effective communication, borrowers will have a lower level of to be acceptable. ISDA’s work on
for example, explaining how fallback knowledge compared to corporates fallback rates is cited as an example
in this regard.
16
CASE0155238_Report_Print Ready.indd 16 21/07/2020 12:07:59Where firms do offer LIBOR-linked interest rate derivatives to hedge Regulators have also warned
products maturing after 2021, they interest rate risk and that invest in regulated institutions of the litigation
should take care to see customer bonds or other securities which refer risk that may be inherent in LIBOR
needs are met and products will to LIBOR, steps should be taken to transition.39. This risk may arise
continue to perform as expected assess client exposures and plan the particularly from value transfer and
(despite the uncertainty over how transition with the best interests from dealings with retail customers,
rates will be calculated in the of customers to the fore. This may and may be especially pronounced in
future). The regulatory preference include revising investment strategy the US.
nonetheless is to avoid such and best execution policies.
contracts. For firms, such as asset
managers, that use LIBOR-referencing
See FCA webpage on conduct risk during LIBOR transition at https://www.fca.org.uk/markets/libor/conduct-risk-during-
38.
libor-transition.
See, e.g., Remarks by Michael Held, Executive Vice President of the Legal Group of the Federal Reserve Bank of New York,
39.
at the SIFMA C&L Society February Luncheon, New York City, 26 February 2019: “You can imagine the litigation risk when
the reference rate for a 20-year contract disappears and there’s no clear path to replace it. Now imagine 190 trillion
dollars’ worth of those contracts. This is a DEFCON 1 litigation event if I’ve ever seen one.”
17
CASE0155238_Report_Print Ready.indd 17 21/07/2020 12:08:05Key upcoming developments
and potential developments
2020 will be a critically important year for LIBOR transition.
There are many separate workstreams the Supplement to the 2006 ISDA to transition discounting and PAI for
currently involved in LIBOR transition, Definitions and related Protocol cleared euro products from EONIA
and these are scheduled to produce will act as a catalyst for market to €STR on or about 22 June 2020.
a number of items during the year participants to transition legacy These changes are expected to drive
that should clarify matters by LIBOR portfolios. The expected liquidity in €STR and SOFR products.40.
reducing uncertainty, removing publication by Bloomberg of indicative These changes will also result in
legal, regulatory or tax obstacles and fallback rates and spread adjustments valuation changes for affected
providing additional and improved in the first half of 2020 should provide transactions that the CCPs propose
pricing information concerning RFRs clarity to market participants to assist to address through compensation
and how they behave. in this transition. mechanisms.41. In February 2020, the
ARRC also issued a consultation on
Many regulators and working Importantly, several major CCPs have swaptions based on USD LIBOR that
groups, including the FSB, the ARRC announced plans to shift discounting could be affected by the discounting
and the Sterling Working Group, and price alignment interest (PAI) for change for cleared derivatives
have committed to make efforts to cleared USD and euro derivatives to from the use of EFFR to SOFR.42. The
increase the awareness of end users RFRs. On 16 October 2020, LCH and working group on euro risk-free rates
in the cash markets of the need to CME have stated that they will: (i) recently launched a consultation on
engage in LIBOR transition, to build use SOFR (instead of the Effective the impact of the transition from
demand and trading volumes in RFR Federal Funds Rate (EFFR)) for PAI EONIA to €STR transition on the
products and to reduce the stock and discounting of new USD swap swaptions market.43.
of legacy transactions that refer to contracts going forward; and (ii)
LIBOR in advance of LIBOR’s expected modify outstanding USD swap
demise at the end of 2021. contracts to replace EFFR with SOFR
As noted above, it is expected that for PAI and discounting. Further,
the publication and effectiveness of LCH, Eurex and CME are scheduled
18
CASE0155238_Report_Print Ready.indd 18 21/07/2020 12:08:05The ARRC has also commenced a and is expected to publish summary purposes or could result in other
consultation on spread adjustment results during Q2 2020. Responses tax consequences.46. The comment
methodologies for fallbacks in cash were due by 6 February 2020. period for the proposed regulations
products referencing USD LIBOR.44. has ended, and the regulations are
Responses are due by 25 March 2020. In October 2019, the US Treasury expected to be finalized at some
This rate would be the first step department issued proposed tax point in 2020.
in the ARRC hardwired approach regulations intended to address
waterfall for a spread adjustment. the possibility that an alteration of
Also with respect to spread the terms of a debt instrument or a
adjustments, the Sterling Working modification of the terms of other
Group has an ongoing consultation types of contracts to replace an IBOR
on credit adjustment spread with a new reference rate could result
methodologies for fallbacks in cash in the realization of income or other
products referencing GBP LIBOR,45. tax items for US federal income tax
40.
ISDA Research Note, Adoption of Risk-Free Rates: Major Developments in 2020 February 2020.
41.
ISDA Research Note, Adoption of Risk-Free Rates: Major Developments in 2020 February 2020.
42.
ARRC Consultation on Swaptions Impacted by the CCP Discounting Transition to SOFR.
euro Working Group, Public consultation on Swaptions impacted by the CCP discounting transition from EONIA to the €STR;
43.
the response date is 3 April 2020.
44.
ARRC Consultation on Spread Adjustment Methodologies for Fallbacks in Cash Products Referencing USD LIBOR; the response
date (originally 6 March 2020) was extended to 25 March 2020.
45.
Consultation on credit adjustment spread methodologies for fallbacks in cash products referencing GBP LIBOR.
46.
The proposed regulations are available here.
19
CASE0155238_Report_Print Ready.indd 19 21/07/2020 12:08:05Remaining
Challenges
Despite all the work done to date on LIBOR transition, a vast amount of
work remains to be done.
The FCA and other regulators Because time is growing shorter, resources and attention of regulators
appear firm in holding to the end- parties no longer have the option and market participants from many
2021 deadline. Further, it is widely of kicking the can down the road. other projects, not limited to LIBOR
thought that the current LIBOR Parties to contracts that refer to transition. In many respects, the
panel banks want to stop making LIBOR must now change those timeline for transition was extremely
LIBOR submissions as soon as contracts or replace them, using ambitious when set, and the many
possible, and will likely stop doing those alternatives that have been issues posed by Covid-19 may make it
so when their agreement ceases developed. Despite the many more difficult for markets to achieve
at the end of 2021 (unless they are warnings from the official sector and the remaining goals of that timeline
compelled otherwise). others, awareness of the issue among by the original target dates.47. On 25
corporate entities seems to be March 2020, the FCA, the BofE and
There has perhaps been some inertia mixed. The scale of the operational the Sterling Working Group issued a
in the market to date as parties have challenge cannot be understated: statement on the impact of Covid-19
waited for further clarification or any single bank or other financial on firms’ LIBOR transition plans.48.
for better alternatives to emerge. institution may have an enormous The statement said that “[t]he
However, to the extent the situation number of these contracts. central assumption that firms cannot
has been clarified, the alternatives rely on LIBOR being published after
that have emerged may not be Several of the transition target dates the end of 2021 has not changed and
perfect or what some had once that have been set by the regulators should remain the target date for
hoped for. In particular, users of cash and working groups may be hard to all firms to meet.” They conceded
products that are used to LIBOR are achieve at this point. As a further that there had been an impact on
likely to need to switch to backward- complication, the effect that the the timing of some aspects of the
looking benchmark rates calculated Covid-19 pandemic will have on LIBOR transition programs of many firms,
in arrears. transition has yet to be determined. and indicated that some of the
At a minimum, Covid-19 appears interim transition milestones might
to be significantly diverting the be affected.
20
CASE0155238_Report_Print Ready.indd 20 21/07/2020 12:08:05The FCA, the BofE and the Sterling Further, it would be a systemic There may be a difference in whether
Working Group indicated that nightmare if the many agreements a pre-cessation trigger is included
they would continue to monitor that have included an “amendment in fallbacks for derivatives and cash
the situation. approach” fallback all needed to products. Further, LIBOR might be
be amended at the same time. declared unrepresentative earlier
Contractual fallbacks continue Finally, market participants will need than 2021 (which might trigger
to be developed, although the to consider whether fallbacks in some fallback clauses, but not
regulators have been clear that different currencies and asset classes others), and this declaration might
fallbacks (however robust) should are aligned. be made only with respect to some
not be viewed as the most effective LIBOR currencies, but not all of
or primary means of handling the Developments in LIBOR transition them. Depending on their LIBOR
transition, and that parties should have been uneven among exposures, firms may need to create
instead use alternative interest currencies and products, and market decision trees that consider many
rates so that reliance on fallbacks participants need to consider that possible variations of an already
is not necessary. Although fallback there may well be considerable complex theme.
provisions may improve as rate disparity among currencies and
options and spread adjustments products at the end of 2021. ~
develop, reliance on fallbacks For example, as noted above, a SONIA
may involve an increased risk of term rate may exist sooner than a
value transfer. SOFR term rate.
See Risk.net, Pandemic threatens Libor transition plans, 13 March 2020.
47.
Available here.
48.
21
CASE0155238_Report_Print Ready.indd 21 21/07/2020 12:08:05CASE0155238_Report_Print Ready.indd 22 21/07/2020 12:08:13
CASE0155238_Report_Print Ready.indd 23 21/07/2020 12:08:14
IBOR Transition
Readiness Matrix
This matrix ranks LIBOR (and select A “5” grade indicates that substantial that significant developments need to
other IBOR) jurisdictions and products certainty exists and that there are no occur in order to achieve readiness.49.
according to the level of readiness for or very few additional steps that need
LIBOR transition, on a scale of 1 to 5, to be taken; a “1” grade indicates that Grade Key:
with 1 indicating the least ready, and 5 substantial uncertainty exists, and
indicating the most ready. 1 2 3 4 5
IBOR Jurisdiction UK/Sterling US/USD Euro zone/euro Japan/Yen
/SONIA /SOFR /€STR /TONA
Click the flag for
more information —-›
Derivatives -in overnight RFRs* 5 4 3 3
Derivatives -in forward 5 5
term rates **50. EURIBOR TIBOR/Euroyen TIBOR
4 2
1 1
RFR-derived RFR-derived
Derivatives- fallbacks 3 3 3 53. 3
FRNs -in overnight RFRs,
5 5 2 2
compounded in arrears*
FRNs – in forward term rates** 5 5
EURIBOR TIBOR/Euroyen TIBOR
2 1
1 1
RFR-derived RFR-derived
FRNs- fallbacks 3 3 3 2
Loans-in overnight RFRs *51. 3 2 2 2
Loans -in forward term rates** 5 5
EURIBOR TIBOR/Euroyen TIBOR
2 1
1 1
RFR-derived RFR-derived
Loans –fallbacks 52. 3 1
5 5
Securitizations -
4 4 1 1
in overnight RFRs*
Securitizations- in forward 5 5
term rates** EURIBOR TIBOR/Euroyen TIBOR
2 1
1 1
RFR-derived RFR-derived
Securitizations – fallbacks 5 5 3 1
24
CASE0155238_Report_Print Ready.indd 24 21/07/2020 12:08:20IBOR Jurisdiction Switzerland/ Australia/A$/ Canada/C$/ Hong Kong/ Singapore/S$/
CHF/SARON AONIA CORRA HK$/HONIA SORA
Click the flag for
more information —-›
Derivatives -in overnight RFRs* 3 4 4 2 2
Derivatives -in forward 5 5 5 1
term rates ** 50. BBSW CDOR HIBOR 54.
SIBOR
1
1 1 1 1
RFR-derived RFR-derived RFR-derived RFR-derived
Derivatives- fallbacks 3 3 3 2 1
FRNs -in overnight RFRs,
3 3 1 1 1
compounded in arrears*
FRNs – in forward term rates** 5 5 5 1
BBSW CDOR HIBOR SIBOR
1
1 1 1 1
RFR-derived RFR-derived RFR-derived RFR-derived
FRNs- fallbacks 3 3 4 1 1
Loans-in overnight RFRs * 51. 2 1 1 1 1
Loans -in forward term rates** 5 5 5 1
BBSW CDOR HIBOR SIBOR
1
1 1 1 1
RFR-derived RFR-derived RFR-derived RFR-derived
Loans –fallbacks 52. 3 3 4 1 1
Securitizations -
1 3 1 1 1
in overnight RFRs*
Securitizations- in forward 5 5 5 1
term rates** BBSW CDOR HIBOR SIBOR
1
1 1 1 1
RFR-derived RFR-derived RFR-derived RFR-derived
Securitizations – fallbacks 3 3 4 1 1
25
CASE0155238_Report_Print Ready.indd 25 21/07/2020 12:08:26*Rankings of overnight RFRs include an assessment of receptivity to transition of legacy IBOR books to compounded RFRs, in arrears.
**Forward term rates refer to rates other than LIBOR. For forward term rates in multiple-rate jurisdictions, two rankings are given: (i) one for
such jurisdiction’s existing non-LIBOR IBOR; and (ii) one for a forward term rate derived from such jurisdiction’s identified RFR.
49.
Among the factors examined are: the degree of liquidity that exists; the degree of consensus achieved regarding market conventions;
whether impediments exist with respect to the development or adoption of a product; and the degree of uncertainty remaining with
respect to market consensus or legal, regulatory, accounting or tax treatment.
50.
We note that derivatives trading in forward term rates based off RFRs does not necessarily involve the use of a rate that is being used as a benchmark.
51.
Some market appetite exists in the US for simple average SOFR in arrears because it may be easier to operationalize a simple average rate
than a compounded rate with respect to loans, which are relatively easier to prepay than other debt. In addition, a simple average may be
easier to use to calculate prices for loan trades with delayed settlement.
52.
To date, most fallbacks with respect to loans have adopted an amendment approach, rather than a hardwired approach.
53.
This assessment includes not only a contractual fallback from EUR LIBOR, but also a contractual fallback from EURIBOR.
54.
As currently constituted, SIBOR is vulnerable to a discontinuation of USD LIBOR, since SIBOR relies on the SGD Swap Offer Rate (SOR), which
is an FX swap implied interest rate computed from actual transactions in the USD/SGD FX swap market, and which uses USD LIBOR as an
input in its waterfall methodology. For this reason, regulators in Singapore determined that SIBOR would not be a suitable alternative to
SOR in SGD interest rate derivatives. See below.
26
CASE0155238_Report_Print Ready.indd 26 21/07/2020 12:08:32UK/Sterling/SONIA
SONIA is the identified RFR for Sterling and has existed since 1997. In
its 2019 progress report, the FSB found that “[t]here has been good
progress in establishing SONIA as the successor to sterling LIBOR.” The
FSB noted increases in Sterling FRNs and securitizations denominated in
compounded SONIA, and the development of liquidity in SONIA swaps
and futures.
In January 2020, the Bank of England These priorities also include a March provisional SONIA forward term rate)
(BofE), the FCA and the Working 2020 target date to switch from is expected by the end of Q3 2020.58.
Group on Sterling Risk-Free Reference LIBOR to SONIA for Sterling interest
Rates (Sterling Working Group) rate swaps. The BofE has also announced
published a set of documents that that (i) from October 2020, it will
outline LIBOR transition priorities and With respect to a forward term rate make newly issued LIBOR-linked
milestones for 2020.55. based on SONIA, “Beta” testing of collateral ineligible to be lent
term rates being developed by FTSE against as part of the BofE’s Sterling
The Sterling Working Group’s Russell, ICE Benchmark Administration Monetary Framework and (ii) it will
priorities include a target that the (IBA), IHS Markit and Refinitiv has progressively increase the haircuts
markets cease issuing cash products been targeted for February 2020.57. on existing LIBOR-linked collateral it
linked to sterling LIBOR by the end In addition, the BofE and the FCA lends against.59. The haircut add-on
of the third quarter of 2020, and have obtained commitments from will be 10 percentage points from 1
also include considering how best large liquidity providers to stream October 2020, 40 percentage points
to address issues of “tough legacy” executable quotes for SONIA OIS for from 1 June 2021 and 100 percentage
contracts (which refers to contracts 1-, 3- and 6-month terms for a testing points from 31 December 2021. This
that cannot transition from LIBOR by period. Live production of those development is expected to increase
means of market-based solutions).56. rates (which could be the basis for a SONIA trading.60.
See Sterling Working Group 2020 Top Level Priorities; BofE and FCA, Next steps for LIBOR transition in 2020: the time to act is now
55.
56.
Sterling Working Group, Minutes of 7 November 2019 Meeting.
Sterling Working Group, 2020 Top Level Priorities; Sterling Working Group, Progress on adoption of risk-free rates in sterling
57.
markets 15 May 2019; IHS Markit presentation September 2019.
58.
Sterling Working Group, Minutes of 7 November 2019 Meeting.
59.
BofE, The Bank's risk management approach to collateral referencing LIBOR for use in the Sterling Monetary Framework -
Market Notice, 26 February 2020.
60.
See, e.g., BoE's Libor collateral haircut set to accelerate Sonia trading, IFLR Practice Insight, 28 February 2020.
27
CASE0155238_Report_Print Ready.indd 27 21/07/2020 12:08:38US/USD/SOFR
According to IOSCO, “USD LIBOR is by far the most significant and widely
used benchmark.”61. The US has not adopted a multiple-rate approach and
has identified SOFR as its RFR. SOFR has been published since the second
quarter of 2018.
In its 2019 progress report, the FSB In October 2017, the US Alternative The ARRC has stated that it views
found that “[a]lthough USD LIBOR Reference Rates Committee (ARRC) the first four steps as having been
remains the dominant rate, SOFR cash set forth its Paced Transition Plan,62. accomplished on or prior to their
markets have begun to grow,” and which sets out six steps and target target completion dates, and that the
noted significant issuances of SOFR completion dates for the transition fifth step will likely be accomplished
FRNs and securitizations. from USD LIBOR. In 2019, the ARRC at least six months earlier than its
issued a set of incremental objectives.63. target completion date.
ARRC Paced Transition Plan
Step Original target Actual completion
completion date date
1. Infrastructure for futures and/or OIS trading in the new rate is put in place 2018 H2 Began in 2018
by ARRC members.
2. Trading begins in futures and/or bilateral, uncleared, OIS that reference SOFR. End of 2018 Began in May 2018
3. Trading begins in cleared OIS that reference SOFR in the current (EFFR) PAI 2019 Q1 Began in 2018
and discounting environment.
4. CCPs begin allowing market participants a choice between clearing new or 2020 Q1 Began in 2018
modified swap contracts (swaps paying floating legs benchmarked to EFFR,
LIBOR, and SOFR) into the current PAI/discounting environment or one that
uses SOFR for PAI and discounting.
5. CCPs no longer accept new swap contracts for clearing with EFFR as 2021 Q2 CME and LCH have
PAI and discounting except for the purpose of closing out or reducing announced that
outstanding risk in legacy contracts that use EFFR as PAI and discount rate. they expect to
Existing contracts using EFFR as PAI and the discount rate continue to exist in move SOFR PAI/
the same pool, but would roll off over time as they mature or are closed out. discounting on
both new and
legacy swaps on 16
October 2020.
6. Creation of a term reference rate based on SOFR derivatives markets once End 2021 ?
liquidity has developed sufficiently to produce a robust rate.
28
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