July 2018 update on IBOR initiatives
IBOR-Reform / News
2. August 2018

July 2018 update on IBOR initiatives

July 4     Working Group on Sterling Risk-Free Reference Rates

Minutes from the May meeting. Currently, this working group is the most interesting to follow in order to understand how the post IBOR world may look like.


July 11   ESMA

Introductory statement for ECON scrutiny session on Level 2 measures

ESMA is worried about the approval of the level 2 measures of the EU BMR (RTS, Regulatory Technical Standards). “The delayed endorsement of the RTS creates significant uncertainties for all parties involved and risks the proper implementation of the BMR. ESMA therefore asks the Commission to give as soon as possible clarity on the endorsement of the RTS”.


July 12   ISDA, FCA, FSB

The institutions released following statements. The temporal link might be interpreted as acting in concert.

ISDA       Consultation on Interbank Offered Rates (IBOR) Fallbacks for 2006 ISDA Definitions

FCA         Andrew Bailey Speech: Interest rate benchmark reform: transition to a world without LIBOR

CFTC       J. Christopher Giancarlo confirms that the LIBOR will be discontinued

FSB         FSB issues statement on reforms to interest rate benchmarks

Andrew Bailey´s key message: “I hope it is already clear that the discontinuation of LIBOR should not be considered a remote probability ‘black swan’ event. Firms should treat it is as something that will happen and which they must be prepared for.”

On the ISDA fallback consultations, Andrew Bailey adds: “Fallback language to support contract continuity or enable conversion of contracts if LIBOR ceases is an essential safety net – a ‘seat belt’ in case of a crash when LIBOR reaches the end of the road.”

This is a clear recommendation not rely on fallback language for migration but rather actively seek to remove the IBOR dependency with the respective counterparts. ISDA´s consultation is open until October 12, 2018.

In Washington the Chairman of the CFTC Giancarlo stated: “The discontinuation of LIBOR is not a possibility. It is a certainty. We must anticipate it, we must accommodate it and we must adapt to it.”

July 25  LCH clears first SOFR swaps

The market made a surprise move when the first SOFR OIS Swaps where cleared via the LCH. About the same time CME annouced start of their SOFR products starting from October 1, 2018. This is clearly ahead of the ARRC paced Transition plan, where the start of Clearing was seen in Q1 2019.


July 25   Benchmark Administrators and EU BMR

It has been quiet with the benchmark providers ICE/IBA and EMMI. The only relevant update on this side is the Bank of England confirmation of SONIA’s compliance with IOSCO principles.


July 29   Working group on euro risk-free rates

Meeting took place on July 11 in Frankfurt. The agenda included the establishment of Subgroup 4 on the Eonia transition. Minutes and further documentation are available on the homepage.

The minutes outlined the Euro RFR selection procedure and confirmed the September 13 meeting as possible date for such a decision.

“After the publication of the market feedback on the three candidate RFRs in mid-August 2018, each of the 21 voting members will prepare the vote on behalf of its own institution. The ECB Secretariat will compile the votes, which will remain anonymous to the group. If a decision is reached, the recommended euro RFR will be announced to the working group and published on the ECB’s website simultaneously. Such a decision will ideally be taken at the next working group meeting on 13 September. Consistent with the working group’s terms of reference, a two thirds majority is required for a working group decision.”

It will interesting to follow the RFR selection process (two-thirds majority necessary).


Outlook for the next months

One very interesting document will be the results of the Consultation on the Euro risk-free rate. According to the minutes, it should be available in mid-August. Otherwise, it looks like August is going to be a quiet month.


Open Consultations

ISDA, Consultation on Interbank Offered Rates (IBOR) Fallbacks for 2006 ISDA Definitions. Ends 12.10.2018.

BOE/Sterling WG, Consultation on Term SONIA Reference Rates. Ends 30.9.2018.