Time is running out for the London Inter-bank Offered Rate (LIBOR), which is due to be withdrawn on the last day of this year in every country except the USD version (which is under consideration to be kept until mid-2023). Given that the interest rate benchmark is used worldwide in contracts worth around $400 trillion, this is a seismic event and firms need to prepare for the transition to alternative rates as soon as possible.
LIBOR, which is being decommissioned as a result of the high-profile rate rigging scandals that led to the EU’s Benchmarks Regulation, is currently produced in seven tenors (overnight/spot next, one week, one month, two months, three months, six months and 12 months) and across five currencies. Its withdrawal will be felt far and wide across the industry, impacting reference data, benchmarks and pricing sources.
To date, five overnight rates have been proposed to replace LIBOR across each of the impacted currencies: Secured Overnight Financing Rate (SOFR) for the US dollar, Euro short-term rate (€STR) for the Euro, Swiss Average Rate Overnight (SARON) for the Swiss Franc, Tokyo Overnight Average Rate (TONAR) for the Yen and Sterling Overnight Interbank Average Rate (SONIA) for Sterling.
The tenors for each rate are still being decided. However, at present, one, three and six months are available on RIMES Managed Data Services (MDS) for SOFR and SARON, and all periods can be calculated for SONIA. Provision of additional tenor-data based on the alternative rates is also available through third-party providers.
Mark Sedgwick, Head of RIMES Cork, comments: “For RIMES’ clients, all feeds containing LIBOR and LIBOR-derived data, including benchmarks that reference LIBOR components, will be affected by the transition to alternative rates.
“However, the seamless transition to new data sources is a core part of the RIMES Managed Data Services proposition. Within that framework, we continue to reach out to all relevant industry bodies to keep up to date on the alternative rates and timeframes so that we can help clients transition off LIBOR as soon as possible and with minimal disruption. We are also enabling calculation capabilities to support additional replacement data and are engaging with major index administrators to understand specific index dependencies and administrators’ plans.
“The move from LIBOR is a major moment for the industry, but it is also exactly the sort of situation that RIMES Managed Data Services are built for, and we will provide maximum support for clients so they can continue focus on their core revenue-generating activities throughout the transition.”
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