ICAP (Hong Kong) Limited, part of TP ICAP, today announced that it has brokered two landmark transactions as the market transitions from LIBOR and HIBOR based fixings to USD SOFR and HKD HONIA, respectively.

The two swap transactions involved were a one-year CNH Fixed versus HONIA and a one-year CNH Fixed versus SOFR.

Tom Lovell, Head of Global Broking for TP ICAP, Asia Pacific, said: “The significance of these two transactions underscores not only the importance of these new industry benchmarks as a replacement to “IBOR” fixings, but also the importance of Hong Kong SAR as the premier CNH centre.”

Last week, Standard Chartered Bank announced the successful completion of the first USD/HKD cross currency basis swap referencing the Hong Kong Dollar Overnight Index Average (HONIA) and the USD secured overnight financing rate (SOFR). The bank has also completed the first USD/HKD cross currency basis swap referencing the 3-month HIBOR and SOFR.

The UK Financial Conduct Authority (FCA) has stated that they will no longer compel banks to contribute to London Interbank Offered Rate (LIBOR) after 2021. Given this, regulators across the global have urged firms to shift away from LIBOR and switch to alternative overnight risk-free rates (RFRs).

While alternative RFRs for each of the LIBOR currencies have been identified, the different jurisdictions are at varying stages of progress. In particular, the depth and liquidity of the market differs across the respective RFRs and product sets (e.g. derivatives, bonds and loans).

The alternative RFRs are considered more robust and reliable interest rate benchmarks than LIBOR as their calculation is based on actual transactions in the underlying market.