libor

Working Group on Sterling Risk-Free Reference Rates Publishes Paper on Loans Referencing LIBOR

 

On December 21, the Working Group on Sterling Risk-Free Reference Rates published a paper aiming to help market participants prepare in advance of 2021, when LIBOR may not be available. The paper considers new and legacy loan transactions that reference LIBOR and highlights possible issues should it be replaced, and also the impacts a LIBOR replacement could have on the regulatory obligations of market participants. The paper also considers the possibility that LIBOR might continue to be published but based on a different methodology. READ MORE

ARRC Releases Consultations on Fallback Contract Language for Bilateral Business Loans and Securitizations for Public Feedback

 

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.

The ARRC is seeking feedback on each proposed approach and on the key issues involved. Comments should be sent to the ARRC Secretariat ([email protected]) no later than February 5, 2019.

Questions regarding the consultations should also be sent to the ARRC Secretariat ([email protected]) and will not be posted for attribution.

LIBOR Transition Update

 

The Alternative Reference Rates Committee (“ARRC“) released additional information regarding its support of the transition from U.S. dollar (“USD“) LIBOR. The ARRC provided a timeline of key milestones. In addition, the ARRC has also released a set of Frequently Asked Questions (“FAQs“) regarding the previously released consultation on USD LIBOR fallback contract language for floating rate notes (“FRNs“). The FRN consultation primarily focuses on new transactions, and, at this time, the ARRC does not intend to produce consultations specifically related to amending outstanding FRNs or other cash products.

The consultation on FRNs and the similar consultation for U.S. syndicated loans are open for public feedback through November 8. (FRN Consultation; U.S. Syndicated Loans Consultation). Comments should be sent to the ARRC Secretariat ([email protected]) no later than November 8. Comments will be posted on ARRC’s website.

FSB Statement on Reforms to Interest Rate Benchmarks

 

On July 12, 2018, the Financial Stability Board (“FSB“) published a statement on reforms to interbank offered rates (“IBORs“) and the development of overnight risk-free rates (“RFRs“) and term rates. The FSB’s comments include the following.

  • Benchmarks that are used extensively must be especially robust to ensure financial stability. The FSB welcomes the progress that has been made by public authorities and the private sector in identifying and developing overnight RFRs that are sufficiently robust.
  • Overnight RFRs are robust because they are anchored in active, liquid underlying markets. However, the lack of underlying transactions in the term interbank and wholesale unsecured funding markets could make IBORs susceptible to manipulation. The FSB therefore encourages the development and adoption of overnight RFRs where appropriate, for example in businesses where term properties are not needed, or where exposure to bank credit risk is not necessary or desirable.
  • In the markets where IBORs are disappearing, for example, those currently reliant on the London Interbank Offered Rate (“LIBOR“), there needs to be a transition to new reference rates. In some other markets, authorities and market participants continue to work on further reform or strengthening of IBORs, in tandem with their efforts to identify and facilitate the wider use of RFRs.
  • An overnight RFR may not, however, be the optimal rate in all the cases where term IBORs are currently used. The FSB recognises that in some cases there may be a role for term rates, including RFR-derived term rates, or term rates derived from other liquid markets.

IBA Publishes Code of Conduct on LIBOR

 

The ICE Benchmark Administration (“IBA“) released issue 5 of the LIBOR code of conduct on June 19, 2018. This document is intended to provide guidance as to the appropriateness of LIBOR as a benchmark rate in agreements, whilst also setting out a framework under which banks are to operate.

The publication of the code of conduct follows the draft version which was circulated in April 2018 and is available here. The code of conduct supersedes the previous issue.

IBA Publishes Position Paper on LIBOR

On October 20, ICE Benchmark Administration Limited (IBA) published a position paper on the evolution of the London Interbank Offered Rate (LIBOR) (also known as ICE LIBOR).

The paper sets out:  IBA’s findings since it became the administrator of LIBOR in February 2014; proposed enhancements following the Financial Stability Board’s publication on Reforming Major Interest Rate Benchmarks; and an invitation for views on the proposals from all stakeholders in LIBOR.  Position Paper.

Reviews into LIBOR, EURIBOR and TIBOR

On July 22, the International Organisation of Securities Commissions (IOSCO) published a Web page on its review of the implementation of IOSCO’s principles for financial benchmarks by administrators of the London Interbank Offered Rate (LIBOR), the Euro Interbank Offered Rate (EURIBOR) and the Tokyo Interbank Offered Rate (TIBOR).  IOSCO found that the three administrators have made significant progress in implementing most of the principles.  However, further work is needed on implementing the principles on benchmark design, data sufficiency and transparency of benchmark determinations.

Also on July 22, the Financial Stability Board (FSB) published a report prepared by the Official Sector Steering Group (OSSG) of regulators and central banks on reforming major interest rate benchmarks. The report was based on the March 2014 report of the Market Participants Group, a group of private sector experts asked by the OSSG to identify additional benchmark rates and to analyze transition issues arising from a move to an alternative rate.  It was also based on the IOSCO review.

In the report, the OSSG recommends a multiple-rate approach that involves: (i) strengthening the existing IBORs (the collective term used by the FSB for each of LIBOR, EURIBO and TIBOR) and other potential reference rates based on unsecured bank funding costs by underpinning them to the greatest extent possible with transactions data; and (ii) developing alternative, nearly interest-risk free reference rates.  Web PageFSB ReportMarket Participants Group Report.

LIBOR Code of Conduct and Whistleblowing Procedure Released by ICE Benchmark Administration

On February 3, The ICE Benchmark Administration (IBA) revised and published the London Interbank Offered Rate (LIBOR) code of conduct for contributing banks and a LIBOR whistleblowing procedure. These documents relate to IBA’s role as the administrator of LIBOR.

The LIBOR Code of Conduct sets out practice standards for contributing banks and covers a number of issues including governance arrangements, submission methodology, conflicts of interest, record-keeping and compliance. The UK Financial Conduct Authority (FCA) has confirmed that the Code is industry guidance.

The whistleblowing procedure explains how an individual can alert the IBA, on an anonymous basis, of any conduct that may involve manipulation, or attempted manipulation, of LIBOR.  LIBOR Code of ConductConfirmed Industry Guidance.  Whistleblowing Procedure.

NYSE Euronext to Become New LIBOR Administrator

On July 9, it was announced that NYSE Euronext Rate Administration Ltd, a new subsidiary of NYSE Euronext, will take over the administration of LIBOR from BBA LIBOR Ltd, a subsidiary of the British Bankers’ Association (BBA), subject to authorization from the Financial Conduct Authority and following a period of transition.  BBA LIBOR Ltd is currently the interim administrator of LIBOR.  NYSE Euronext Press Release.

Former Financial Trader Charged with Fraud in SFO LIBOR Investigation

As part of the continuing investigation by the UK’s Serious Fraud Office (SFO) into the manipulation of LIBOR, the City of London police charged former UBS and Citigroup trader Tom Hayes with eight counts of fraud on June 18.  Mr. Hayes, one of three traders arrested last December in connection with the investigation, was also charged with fraud by US prosecutors in 2012 and threatened with extradition.  The SFO related charges are the first to be made by a UK authority in relation to the LIBOR investigation.  Press Release.