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Libor Discontinuation

Notice of the LIBOR Discontinuation

Date 2021.07.14

View 1193

This notice provides updates to the application of alternative reference rates due to LIBOR cessation and informs you of the key news regarding LIBOR transition to risk-free rates in the global market as below:

 

1. Regarding the discontinuation of LIBOR, the Federal Reserve Board("FRB") encouraged banks to cease entering into new contracts that use USD LIBOR from 2022. Many market participants in major countries have reduced the number of new contracts linked to LIBOR and shifted from LIBOR to alternative interest rates for their existing contracts to accelerate the LIBOR transition.

 

The Financial Conduct Authority of the U.K.("FCA") has confirmed on 5 March 2021 that all LIBOR settings will either cease to be provided by any administrator or no longer be representative from the following dates (Appendix 1):

 

[LIBOR cessation date]

- Immediately after 31 December 2021: CHF, EUR, GBP, JPY currency settings

- Immediately after 31 December 2021: 1-week and 2-month US dollar settings

- Immediately after 30 June 2023: overnight and 1, 3, 6, 12-month US dollar settings

 

2. The Alternative Interest Rates Committee("ARRC") confirmed on 8 March 2021 that the 5 March 2021 announcements by FCA and ICE Benchmarks Administration on future cessation and loss of representativeness of the LIBOR benchmarks constitute a "Benchmark Transition Event." (Appendix 2) The spread adjustment associated with the event has also been confirmed by the International Swaps and Derivatives Association, Inc..(“ISDA”). (Appendix 3)

 

3. In early April 2021, New York State Governor signed legislation addressing the issue of legacy LIBOR contracts that mature after mid-2023 and do not have effective fallbacks - adding a new Article 18-C to the General Obligations Law in New York State.

 

The ARRC expected that this legislation will be crucial in minimizing legal uncertainty and adverse economic impacts associated with the transition from LIBOR. (Appendix 4)

 

4. The Interest Rate Benchmark Reform Subcommittee("Subcommittee") of the Commodity Futures Trading Commission’s ("CFTC") Market Risk Advisory Committee (MRAC) announced on 8 June 2021 that it recommended, as a market best practice, that interdealer brokers change USD linear swap trading conventions from USD LIBOR to the Secured Overnight Financing Rate("SOFR") on 26 July 2021. The Subcommittee also recommended keeping interdealer broker LIBOR linear swap screens available only for the informational purposes after that date and turning the screens off altogether after 22 October 2021. (Appendix 5)

 

The ARRC pointed out that the recommendations set out by the MRAC Subcommittee provide market participants with important guidance that will help accelerate the interest rate swap market’s shift away from LIBOR. (Appendix 6)

 

5. The Financial Stability Oversight Council("FSOC") Principals Meeting convened by Treasury Secretary Janet Yellen on 11 June 2021 included a discussion about the importance of accelerating the transition from LIBOR and using sufficient robust reference rates-like the ARRC-recommended SOFR-for derivatives and capital market products. (Appendix 7)

 

Regarding this discussion, the ARRC highlighted that LIBOR is going away very soon so transition efforts must accelerate. (Appendix 8)

 

6. On 10 July, 2021, the G20 finance ministers and central banks governors also confirmed that postponing the LIBOR cessation date was not encouraging the continued use of LIBOR, reiterating the importance of an orderly transition away from LIBOR rates to suitably robust alternatives before the end of 2021. (Appendix 9, 10)

 

7. The ARRC's Frequently Asked Questions have been updated on 27 April 2021. (Appendix 11)

 

Appendix:

1. Announcements on the end of LIBOR, FCA, 5 March 2021

2. ARRC Confirms a "Benchmark Transition Event" has occurred under ARRC Fallback Language, ARRC, 8 March 2021

3. IBOR Fallbacks – Technical Note: Spread Fixing Event for LIBOR, Bloomberg, 5 March, 2021

4. ARRC Endorses Decision to Sign New York State LIBOR Legislation into Law, ARRC, 7 April 2021

5. CFTC’s Interest Rate Benchmark Reform Subcommittee Recommends July 26 for Transitioning Interdealer Swap Market Trading Conventions from LIBOR to SOFR, CFTC, 8 June 2021

6. ARRC Welcomes MRAC Subcommittee’s Recommended Dates for Transitioning Interdealer Swap Market Trading Conventions to SOFR, ARRC, 8 June 2021

7. Remarks by Secretary of the Treasury Janet L. Yellen to the Financial Stability Oversight Council on LIBOR Transition, U.S. DEPARTMENT OF THE TREASURY, 11 June 2021

8. ARRC Welcomes and Highlights Messages from Recent FSOC Principals Meeting, ARRC, 15 June 2021

9. 3rd Finance Ministers and Central Banks Governors’ Meeting, G20, 9-10 July, 2021

10. Progress Report to the G20 on LIBOR Transition Issues, FSB, 6 July, 2021

11. ARRC's Frequently Asked Questions, ARRC, 27 April 2021