A race to the Libor finish

With the Libor transition just over a week away, exchanges such as LCH and Intercontinental Exchange (ICE) have been busy converting their Libor contracts in British pound, Japanese yen, Swiss franc and Singapore dollar into their respective new risk-free rates (RFRs) – Sonia, Tonar and Saron and Sora.

ICE said it transitioned a total of 3.5m sterling contracts and 145,082 Euroswiss contracts.

“The transition completes ICE’s Libor cessation process for these contracts and ICE Sonia is now the benchmark contract for managing UK short term interest rate risk,” said Steve Hamilton, Global head of financial derivatives at ICE. “

She added, “Through continued innovation over the past few years and by closely supporting our customers through their transition to new alternative rate markets, ICE offers its customers the greatest liquidity to manage UK and Swiss interest rate risk as part of a broad multi-currency rate product suite.”

As outlined in April 2021 following a market consultation, ICE converted Libor-referenced contracts into the notional equivalent number of RFR-referenced contracts, applying the relevant spread for fallbacks in International Swaps and Derivatives Association (ISDA) documentation to the conversion.

Meanwhile, “LCH SwapClear successfully converted around 185,000 GBP Libor swaps contracts into Sonia this weekend, representing an aggregate value of £11.3 trillion,” according to Susi de Verdelon, head of SwapClear and Listed Rates, LCH.

She added, “It’s a great achievement to have completed the final LIBOR conversion event for 2021 seamlessly, enabling a smooth opening of the market on Monday. This effectively closes the door on non-USD LIBOR for the OTC swaps market. It’s a significant milestone for the industry with CHF, EUR, GBP, and JPY Libor ineligible for use in cleared swaps beyond 31 December 2021.”

She notes, “All of this builds upon our work consulting with members earlier in the year and on our recent successful conversion in October of €13 trillion in notional of EONIA swaps contracts to €STR and $6tn of Swiss Franc, Euro and Japanese Yen Libor swaps to Saron, €str and Tonar respectively.”

Twenty-four out of the 35 daily Libor settings will cease in January while six more will continue temporarily in a synthetic form, as a fallback to help the market switch over. The view is that they may be discontinued over the next 18 months.

©Markets Media Europe 2021

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