Welcome to the latest issue of Mayer Brown’s IBOR Transition Digest—a periodic compendium of global regulatory and market developments and insights on the complex issues confronting financial market participants as they plan to transition from LIBOR and its variants to replacement benchmark interest rates. As attention to IBORtransition accelerates and becomes more focused, it is critical to have access to comprehensive and timely resources about the market.
For additional resources and an introduction to our global cross-practice IBOR Transition Task Force, please visit Mayer Brown’s IBOR Transition portal.
Thought Leadership | News and Developments | Upcoming Events
LIBOR Transition Assistance Legislation Introduced in New York State Senate
Eye on IBOR Transition Blog, 29 October 2020
On October 28, 2020, New York State Senate Bill S9070 was introduced, which would add a new Article 12 to New York’s Uniform Commercial Code that substantially adopts the language from the proposed legislative solution produced by the Alternative Reference Rates Committee in March 2020.
Promised UK ‘Tough Legacy’ Legislation Released; HM Treasury Issues Supporting Policy Statement
Eye on IBOR Transition Blog, 29 October 2020
The UK Government released its promised draft legislation, Financial Services Bill 200, on October 20, 2020, to assist the ‘tough legacy’ issue for certain LIBOR-referencing contracts by providing the UK’s Financial Conduct Authority with new and enhanced powers to oversee the orderly wind-down of critical benchmarks.
IBOR: A New Frontier for Digital Contract Management
Eye on IBOR Transition Blog, 27 October 2020
Modern digital contract management tools—software products that locate, track, analyze and change contracts—incorporate artificial intelligence, allowing them to perform advanced searches and analytics on a repository of contracts, and confront the challenges of IBOR transition.
Sterling Working Group: The Latest Position on RFR Calculators and Beta Term SONIA Reference Rates
Eye on IBOR Transition Blog, 23 October 2020
On 16 October, the Working Group on Sterling Risk-Free Reference Rates announced the publication of two resources in their ongoing work to inform and ease the path of transition from IBORs: the beta versions of Term SONIA Reference Rates and risk-free rate calculators.
LMA publishes latest list of RFR referencing loans
Eye on IBOR Transition Blog, 22 October 2020
On 16 October, the Loan Market Association published an updated version of a list that sets out the near risk-free rate referencing loans which have been announced to date.
United States – General
Capital and Liquidity Regulatory Considerations in the Context of a Transition from Interbank Offered Rates to Alternative Risk-Free Rate Benchmarks
Alternative Reference Rates Committee, 2 November 2020
In a memorandum addressed to U.S. prudential banking regulators, the ARRC summarized its preliminary findings and recommendations regarding potential regulatory considerations associated with the application of current and anticipated capital and liquidity requirements in the context of the market transition from the use of interbank offered rates to alternative risk-free rate benchmarks, including requests for regulators to consult on specified issues and make appropriate related recommendations that clarify the application of these requirements in various LIBOR transition scenarios.
Senate Bill S9070 to amend the uniform commercial code, in relation to the effect of a LIBOR discontinuance event on contracts, securities and other agreements
New York State Senate, 28 October 2020
Legislation, introduced by Senator Kevin Thomas, implementing the ARRC’s recommendation for a legislative solution for difficult-to-amend legacy contracts.
United Kingdom – Syndicated and Bilateral Loans
Transition from LIBOR for SME Customers – Best Practice Guidance
Lending Standards Board/UK Finance, 28 October 2020
A guide making strategic recommendations to firms on good practice for the transition of small- and medium-sized enterprises customers to non-LIBOR linked products, with the aim of facilitating good customer outcomes and enhancing consistency of approach across the financial services industry.
United Kingdom – General
Amendments to the Benchmarks Regulation to support LIBOR transition - Policy Statement
HM Treasury, 21 October 2020
Making strategic recommendations on good practice for the transition of small and medium-sized enterprise customers (businesses with a consolidated turnover of up to £25 million) to non-LIBOR linked products with the aim of facilitating good customer outcomes and enhancing consistency of approach across the financial services industry.
Financial Services Bill 200
UK Parliament, 20 October 2020
Introducing provisions about financial services and markets, including stable benchmark transition. See sections 8-21 and Schedule 5.
Key Messages and Actions from Webinar Event: Is Your Business Prepared for LIBOR Transition?
WGSRFRR, 18 September 2020
Slide deck from a Sterling Working Group webinar addressing current transition developments with respect to LIBOR.
Europe – General
Minutes of the 29 September 2020 meeting of the National Working Group on Swiss Franc Reference Rates
SNB, 22 October 2020
Meeting minutes and presentation slide decks, including SARON market developments and alignment with international market conventions, and fallback recommendations.
Asia and Pacific Rim – Syndicated and Bilateral Loans
Overview on the Usage of SORA in Loans – Customer Segments and Preferences
ABS/SC-STS, 27 October 2020
Providing an overview on the usage of SORA in loans, and examining how SORA loans can meet the needs of various customer segments, and guiding current and potential users of floating interest rate products on the appropriate adoption of SORA in loan products based on their needs.
Asia and Pacific Rim – Derivatives
Joint Media Release #2020-25 - Regulators urge Australian institutions to adhere to the ISDA IBOR Fallbacks Protocol and Supplement
Reserve Bank of Australia, 13 October 2020
Australian regulatory authorities strongly urges Australian institutions to adhere to the ISDA Protocol and Supplement, which is an important step towards the orderly transition of LIBOR-referenced derivatives contracts.
Asia and Pacific Rim - General
Interest Rate Benchmark Brochure
ASX, 28 October 2020
Summarizing the benefits for product users, investors, and borrowers of benchmarks administered by ASX Benchmarks.
Industry Steering Committee Announces Timelines to Cease Issuance of SOR-Linked Financial Products, and Publishes Market Guidance to Support Transition to SORA
ABS/SC-STS, 27 October 2020
Announcing a number of new resources designed to support a coordinated shift away from the use of the SGD Swap Offer Rate (SOR) in financial products, and to concurrently accelerate usage of the Singapore Overnight Rate Average (SORA).
Timelines to Cease Issuance of SGD Swap Offer Rate (SOR) Linked Financial Products
ABS/SC-STS, 27 October 2020
With key technical preparation work largely in place, the SC-STS decided that it would be timely to publish market guidance on a coordinated shift away from the use of SOR in financial products, and a concurrent accelerated usage of SORA.
SORA Market Compendium: Transition from SOR to SORA
ABS/SC-STS, 27 October 2020
A guide to provide market participants with industry guidance on the key issues that need to be considered for their existing or future Singapore dollar financial products (including derivatives and cash market products) that may be affected by the transition from using the Singapore Swap Offer Rate to the Singapore Overnight Rate Average.
End-User Checklist on Benchmark Transition
ABS/SC-STS, 27 October 2020
Providing two checklists to prepare for benchmark transition, depending on the potential impact to a market participant based on number of contracts and currencies outstanding, and whether derivatives or other hedges and fixed income securities are involved.
Global – Derivatives
A Major Milestone for Benchmark Reform – speech of ISDA CEO, Scott O’Malia
ISDA, 26 October 2020
“It is impossible to overstate the significance of fallbacks, both in mitigating the systemic risk that would arise from the cessation of a key IBOR and in moving the industry a step further in the long journey away from LIBOR.”
ISDA Launches IBOR Fallbacks Supplement and Protocol
ISDA, 23 October 2020
ISDA formally launched the IBOR Fallbacks Supplement and IBOR Fallbacks Protocol, marking a major step in reducing the systemic impact of a key interbank offered rate becoming unavailable while market participants continue to have exposure to that rate. At launch, 257 derivatives market participants had adhered to the protocol during the two-week pre-launch ‘escrow period.’
ISDA 2020 IBOR Fallbacks Protocol
ISDA, 23 October 2020
Enabling market participants to incorporate the revisions into their legacy non-cleared derivatives trades with other counterparties that choose to adhere to the protocol. The protocol is open for adherence from 23 October, and will become effective on 25 January 2021.
Supplement No. 70 - Amendments to the 2006 ISDA Definitions to include new IBOR Fallbacks
ISDA, 23 October 2020
Amending ISDA’s standard definitions for interest rate derivatives to incorporate robust fallbacks for derivatives linked to certain IBORs, with the changes coming into effect on January 25, 2021, after which all new cleared and non-cleared derivatives that reference the definitions will include the fallbacks.
Exploring credit sensitive alternatives to SOFR
10 November, 4pm GMT. 9am EDT
The Alternative Reference Rates Committee (ARRC) has selected Secured Overnight Financing Rate (SOFR) as the replacement for LIBOR in the US. However, a group of US banks — primarily non-money centers have expressed concerns about the use of SOFR as the replacement benchmark for LIBOR.
They argue that during times of economic stress, SOFR would decrease as their cost of funds increase, eroding the return on SOFR-linked loans. These banks have championed a more credit sensitive approach or a credit sensitive supplement to SOFR.
In response, the New York Fed created a Credit Sensitivity Group and have convened 4 meetings of the group to date in 2020 to (i) understand of the challenges that banks of all sizes, and their borrowers, may face in transitioning loan products from LIBOR to SOFR and (ii) explore methodologies that consider a credit sensitive rate/spread that could be added to SOFR.
Join Mayer Brown Partner Paul Forrester and Heidi Rudolph, Managing Director at Morae Global, as we discuss topics including:
- Why is there a need for credit sensitive rate?
- What are the “credit sensitive” alternatives to SOFR?
- How can banks use modelling techniques to identify, quantify and mitigate credit (?) exposures (and preserve their profit margins?) across their portfolios?
- How can banks ensure that these modelling techniques are transparent so that borrowers can anticipate and manage their borrowing cost?
Replays of all of our IBOR Transition Webinar Series presentations are available via iTunes podcasts, Google play or Spotify, as well as on the IBOR Transition Webinar Series page of our dedicated IBOR Transition portal.
