IBA launches consultation on potential cessation of LIBOR settings
Intercontinental Exchange, Inc. (NYSE:ICE) has announced that ICE Benchmark Administration Limited (IBA) has published its consultation on plans to cease the publication of LIBOR settings.
Let’s recall that IBA made announcements on November 18, 2020, and November 30, 2020, that it would consult on its intention to cease the publication of:
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all GBP, EUR, CHF and JPY LIBOR settings, and the 1 Week and 2 Month USD LIBOR settings immediately following the LIBOR publication on December 31, 2021, and
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the Overnight and 1, 3, 6 and 12 Month USD LIBOR settings immediately following the LIBOR publication on June 30, 2023, subject to any rights of the FCA to compel IBA to continue publication.
Let’s note that, together with the FCA, the Bank of England has been working with market participants to catalyse a transition to using SONIA, published by the Bank of England, which has been recommended as the preferred RFR for use in Sterling markets. The Working Group on Sterling Risk-free Reference Rates (SWG) has been established to support transition.
Work is also underway to develop forward-looking term SONIA settings, targeted by Q1 2021.
The SWG also has a target that users cease the initiation of new GBP LIBOR linked linear derivatives and loans expiring after 2021 by end-Q1 2021, other than for risk management of existing positions. These targets are intended to support transition efforts.
IBA asked GBP LIBOR panel banks to consider providing GBP LIBOR submissions for the most widely-used settings for a temporary extension period beyond December 31, 2021, in order to provide users with a slightly longer window to complete transition.
However likely as a result of various factors, including progress regarding transition efforts and the proposed legislation to give the FCA enhanced powers to manage and direct a wind-down of GBP LIBOR and to allow use in legacy instruments, an insufficient number of GBP LIBOR panel banks have communicated to IBA that they would be willing to continue contributing to GBP LIBOR after December 31, 2021 for IBA to be sure these settings could be continued on a representative basis after that date.
Accordingly, IBA is consulting on the intended cessation of all GBP LIBOR tenors (as calculated under the Waterfall Methodology based on panel bank submissions), i.e. Overnight; 1 Week; 1 Month; 2 Months; 3 Months; 6 Months; and 12 Months, to take effect after the publication of LIBOR on Friday December 31, 2021.
Regarding USD LIBOR, IBA notes that USD LIBOR is the most-widely used LIBOR currency globally. Transition from USD LIBOR to SOFR, the preferred RFR for USD, which is published by the Federal Reserve Bank of New York, is being supported by the Alternative Reference Rates Committee (ARRC). The ARRC has published recommended fallback language for contracts referencing USD LIBOR and work is also underway to develop forward-looking term SOFR settings to support transition.
IBA asked USD LIBOR panel banks to consider providing USD LIBOR submissions for the most widely-used settings for an extension period beyond December 31, 2021, in order to provide users with a longer window to complete transition.
Following discussions involving the panel banks, FCA, and other official sector entities, and likely as a result of various factors, including the relative usage levels of the various tenors, an insufficient number of USD LIBOR panel banks have communicated to IBA that they would be willing to continue contributing to USD LIBOR:
- for the 1 Week and 2 Month tenors after December 31, 2021 for IBA to be sure these settings could be continued on a representative basis after that date; and
- for the Overnight, 1, 3, 6 and 12 Months tenors after June 30, 2023 for IBA to be sure these settings could be continued on a representative basis after that date.
Accordingly, IBA is consulting on the intended cessation of USD LIBOR:
- for the 1 Week and 2 Month tenors (as calculated under the Waterfall Methodology based on panel bank submissions), to take effect after the publication of LIBOR on Friday December 31, 2021; and
- for the Overnight, 1, 3, 6 and 12 Months tenors (as calculated under the Waterfall Methodology based on panel bank submissions), to take effect after the publication of LIBOR on Friday June 30, 2023.
Any publication of the Overnight and 1, 3, 6 and 12 Months USD LIBOR settings based on panel bank submissions beyond December 31, 2021 will need to comply with applicable regulations, including as to representativeness. Based on current information from panel banks, IBA anticipates there being a representative panel for the continuation of these USD LIBOR settings through to June 30, 2023.
The consultation is open for feedback until 5:00 pm London time on January 25, 2021. After the feedback period has closed, IBA intends to share the results of the consultation with the FCA and to publish a feedback statement summarizing responses from the consultation shortly thereafter.