SNB to exclude Libor-based floating-rate notes from list of collateral eligible for repos at end-2021
The Swiss National Bank (SNB) today announced steps towards the transition from Libor to new and more robust reference rates such as SARON.
Libor fixings in Swiss francs and other currencies (with the exception of certain maturities in US dollars) will probably be discontinued at the end of 2021. The SNB is seeking to reduce potential risks inherent in the disappearance of Libor.
For this reason, it will exclude all Libor-based floating-rate notes in all currencies from the list of collateral eligible for SNB repos as of the end of 2021. Those floating-rate notes whose interest rate is determined using other reference rates will remain on the list.
This change will affect only a few securities, and the potential available volume of collateral eligible for SNB repos will be only marginally smaller as a result. The exclusion of the securities affected will be visible in the search modifications utility as of the end of 2021.
SNB’s Andréa M. Maechler noted that the Libor administrator has launched a consultation procedure on the discontinuation of Swiss franc Libor as per end-2021. Market participants in Switzerland may therefore only have around 12 months to complete the necessary work for a smooth transition to SARON.
The supply of SARON-based products on the credit market is increasing. For example, various banks have launched SARON-based mortgages in recent months, Ms Maechler said.
However, the SARON-based derivatives market is still significantly less liquid than its Libor- based counterpart – turnover on the SARON-based derivatives market remains considerably lower than turnover on the Libor-based market, she added.
Ms Maechler stressed it is important that Libor-based contracts that cannot be switched to SARON before the end of 2021 are furnished with robust fallback clauses.
“The SNB itself continues to make progress with the changeover to SARON – we will have no outstanding Libor-based derivatives in our investment portfolio by the end of 2021”, she concluded.