On March 5th, 2021, the Alternative Reference rates Committee (ARRC) commended announcements by the Financial Conduct Authority (FCA) and the ICE Benchmark Administration (IBA) on when LIBOR panels for various currency benchmarks would end. These announcements /would fix the spread adjustments in the International Swaps and Derivatives Association (ISDA) IBOR Protocol. In a statement ISDA responded to the FCA announcement, stating that it “constitutes an index cessation event under the IBOR Fallbacks Supplement and the ISDA 2020 IBOR Fallbacks Protocol for all 35 LIBOR settings. As a result, the fallback spread adjustment published by Bloomberg is fixed as of the date of the announcement for all EURO, Sterling, Swiss Franc, US Dollar and Yen LIBOR settings.” These announcements should accelerate market participants move away from USD LIBOR.

What this means

On December 4th, 2020, following discussions with the FCA, the IBA published a consultation on its intention to cease the publication of all EURO, Sterling, Swiss Franc and Yen benchmark settings, together with one week and two month US Dollar settings on December 31st, 2021, and overnight, one, two, three, six and twelve month US Dollar LIBOR on June 30th 2023. The reason for this consultation was due to a number of panel banks stating that they would not be willing to contribute to the LIBOR settings after these dates, and so publishing these benchmarks on a representative basis would not be possible. The IBA received broad feedback on their consultation from multiple stakeholders, and concluded that in the absence of sufficient panel bank support it would not be possible to publish the relevant LIBOR rates beyond the specified dates.

The FCA /would consult on requiring the IBA to publish certain US Dollar, Sterling and Yen LIBOR benchmarks on a “synthetic” basis beyond the proposed dates, but has no intention of doing so for any EURO or Swiss Franc rates. 

Conclusion

“The end of the long transition road is clear. We now know when a representative US Dollar LIBOR will end and what its associated spread adjustments will be in no uncertain terms,” said Tom Wipf, ARRC Chair.

“Together with the actions taken at the end of last year, these announcements provide a clear end date for US Dollar LIBOR and a clear path for the change to alternative reference rates. As promised, the official sector has worked closely with all parties to ensure this transition is fair, transparent, and predictable. In the months ahead, supervisors will focus on ensuring firms are managing the remaining transition risks,” said Randal Quarles, Vice Chair for Supervision at the Federal Reserve Board, and Chair of the Financial Stability Board (FSB).

These sentiments were echoed by John C Williams President of the Federal Reserve bank of New York, and Rostin Behnam, Acting Chair of the Commodity Futures Trading Commission (CFTC), who stated, “Given the supervisory guidance from relevant U.S. authorities regarding no new US Dollar LIBOR exposures post 2021, plus the best practices of the ARRC to achieve this outcome, we expect liquidity to shift away from US Dollar LIBOR in the coming months. It is time for firms of all sizes, intermediaries, and end-users to start executing their plans to transition to SOFR and other robust alternative reference rates.”

References

  1. ARRC Commends Decisions Outlining the Definitive Endgame for LIBOR https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2021/ARRC_Press_Release_Endgame.pdf
  2. ICE Benchmark Administration Publishes Feedback Statement for the Consultation on its Intention to Cease the Publication of LIBOR Settings Intercontinental Exchange – ICE Benchmark Administration Publishes Feedback Statement for the Consultation on Its Intention to Cease the Publication of LIBOR® Settings (theice.com)
  3. FCA Announcement on Future Cessation and Loss of Representativeness of the LIBOR Benchmarks FCA announcement on future cessation and loss of representativeness of the LIBOR benchmarks
  4. ISDA Statement on UK FCA LIBOR Announcement ISDA Statement on UK FCA LIBOR Announcement – International Swaps and Derivatives Association

Newsletter Author: Venetia Woo; Mairi Bryan
Newsletter Contact Person:
Venetia Woo

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