Regulatory Insights
NWM: LIBOR transition filling your Christmas hamper

While most were eying up the turkey dinner and having a break from BREXIT, the LIBOR Transition & benchmark reform machine continued to roll on with a mix of statements, papers and Q&A.


In case you missed it – there’s a round-up below following on from my note in December


Sterling Reform

1. Working Group on Sterling Risk-Free Reference Rates publishes paper on loan transactions referencing Sterling LIBOR  (Dec 21st)

The Working Group on Sterling Risk-Free Reference Rates (RFR) has published a paper on new and legacy loan transactions referencing Sterling LIBOR.

The paper is addressed to loan market participants who continue to reference LIBOR in new and legacy loan transactions, in particular where those loans mature beyond the end of 2021 when LIBOR may cease to be available. The paper is intended to help market participants increase their level of preparedness and forward planning by setting out:

  • potential considerations associated with legacy or new loan agreements referencing LIBOR;
  • steps which can be taken to mitigate these considerations for new transactions; and
  • measures which can be taken to mitigate these considerations for legacy transactions.


2. ISDA Final Results of its Benchmark Fallbacks Consultation (Dec 20th)

ISDA published the final results its July 2018 consultation on technical issues related to new benchmark fallbacks for derivatives contracts referencing certain interbank offered rates (IBORs). Preliminary findings were published in November. The great majority of respondents preferred the ‘compounded setting in arrears rate’ for the adjusted RFR rate and a significant majority preferred the ‘historical mean/median approach’ for the spread adjustment. Most preferred to use the same adjusted RFR and spread adjustment across all benchmarks and a further consultation in early 2019 will cover benchmarks not included in the first consultation. ISDA will now develop fallbacks for inclusion in its standard definitions based on the preferred approaches.


3. The Bank of England (BoE) Working Group issues statement on next steps for LIBOR transition and development of term SONIA reference rate (Dec 24th)

The BoE/industry Working Group on Sterling RFR has issued a statement on the next steps for LIBOR transition and development of a term rate based on SONIA.

This follows a consultation on forward-looking term SONIA reference rates (TSRR) published in July 2018, and the publication of a summary of responses to that consultation in November 2018.

The Working Group notes that, for many current users of term LIBOR, overnight SONIA may be a more appropriate reference rate than a term alternative and encourages such LIBOR users to progress their transition from LIBOR to the greatest extent possible, independently of any further progress on the development of a TSRR.

Additionally, feedback from the consultation endorses the Working Group's objective of encouraging production of a robust TSRR as soon as practicable.

The Working Group has invited benchmark administrators to consider the summary of responses to the consultation and to share any views on the development of such benchmarks by 15 February 2019, ahead of further discussion on the topic at the Working Group’s March meeting.


4. ICE Benchmark Administration launches survey on the use of LIBOR (Dec 4th)

ICE Benchmark Administration Limited (IBA) launched a survey on the most widely used LIBOR settings to inform its work in seeking the support of globally active banks for the publication of certain LIBOR settings after year-end 2021. The IBA intends to use the results of the survey to inform its work in seeking the support of globally active banks for the publication of certain LIBOR settings after year-end 2021, with the aim of providing those LIBOR settings to users with outstanding LIBOR-linked contracts that are impossible or impractical to modify. Any such settings would need to be compliant with relevant regulations, in particular those regarding representativeness. The IBA states that work on the possible continued publication of certain LIBOR settings is not intended as an alternative to the transition to risk-free reference rates for new business. The deadline for comments is 15 February 2019.


Euro reform

5. ECB working group on euro risk-free rates seeks market feedback on transition from EONIA to ESTER and ESTER-based term structure (Dec 20th)

The working group is asking market participants to comment on its technical analysis of the paths available for transitioning from EONIA to ESTER, its preferred transition option and alternative ESTER-based term structure methodologies that can serve as a fallback for EURIBOR-linked contracts. The deadline for comments is 1 February 2019


6. EMMI extends publication of EURIBOR under Act/365 and 30/360 basis until 31 Mar 2019 (Nov 28th)

The European Money Markets Institute (EMMI) announced it would continue to publish Euribor under the Actual/365 and 30/360 day count conventions until 31 Mar 2019 and distributed by vendors until 1 Feb 2019. This was originally planned for 3 Dec 2018 but extended at stakeholder request. The Actual/360 rates will continue beyond that. Publication of panel banks' submissions and 2 week, 2 month and 9 month rates will cease from 3 Dec 2018 (leaving 1 week and 1, 3, 6 and 12 months).


USD Reform

7. ARRC Releases Consultations on Fallback Contract Language (Dec 7th)

The Alternative Reference Rates Committee (ARRC) released consultations on U.S. dollar (USD) LIBOR fallback contract language for bilateral business loans and securitizations for public feedback. These consultations outline draft language for new contracts that reference LIBOR so as to ensure these contracts will continue to be effective in the event that LIBOR is no longer usable.


Wider Benchmark reform

8. ESMA updated Q&A on Benchmark Regulation (Dec 18th)

The update provided clarifications on 'Methodology and input data: parameters to be considered as input data'. Q5.12 looks at whether the methodology of a benchmark include factors that are not input data. Q5.13 asks if the methodology can include factors not covered by Art 3(1)(24) BMR (no unless the factors are not considered input data).


9. ESMA guidelines on non-significant benchmarks (Dec 20th)

This proposes lighter requirements around oversight, input data and methodology, all applicable to administrators. For contributors the guidelines cover governance and control requirements.


This is Non-Independent Research, as defined by the Financial Conduct Authority. This material should be regarded as a marketing communication and may have been produced in conjunction with the NatWest Markets Plc trading desks that trade as principal in the instruments mentioned herein. All data is accurate as of the report date, unless otherwise specified.


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Phil Lloyd

Managing Director, NWM Sales

+44 20 7085 1271

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Phil Lloyd
Head of Market Structure & Regulatory Customer Engagement
+44 20 7085 1271


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