Intercontinental Exchange, Inc. (NYSE:ICE), a leading global provider of data, technology, and market infrastructure, today announced that ICE Benchmark Administration Limited (IBA), the authorized and regulated administrator of LIBOR®, has provided an update regarding LIBOR cessation and “synthetic” LIBOR following previous announcements from the UK Financial Conduct Authority (FCA).
On March 5, 2021, the FCA announced that all Swiss franc and euro LIBOR settings, the 1 Week and 2 Month U.S. dollar LIBOR settings, and the Overnight/Spot Next, 1 Week, 2-Month and 12-Month sterling and Japanese yen LIBOR settings will cease immediately after December 31, 2021, and that the Overnight and 12-Month U.S. dollar LIBOR settings will cease immediately after June 30, 2023.
On September 29, 2021, the FCA announced, following a consultation, that in order to help ensure an orderly wind down of the 1-, 3- and 6-Month sterling and Japanese yen LIBOR settings it will compel IBA to publish these six LIBOR settings under a changed, “synthetic” methodology for the duration of 2022. The FCA has noted that any settings published under a “synthetic” methodology will no longer be representative of the underlying market or economic reality the setting is intended to measure as those terms are used in the UK Benchmarks Regulation (BMR).
The FCA announced that it has confirmed the changed methodology that it will require IBA to use to determine the “synthetic” LIBOR settings (following the FCA’s consultation proposals), which is as follows1:
Currency and calculation
(ICE TSRR2 + ISDA Spread Adjustment3)
(TORF4 + ISDA Spread Adjustment3)
1M ICE TSRR + 0.0326%
1M TORF x (360/365) - 0.02923%
3M ICE TSRR + 0.1193%
3M TORF x (360/365) + 0.00835%
6M ICE TSRR + 0.2766%
6M TORF x (360/365) + 0.05809%
1 Please see the FCA's draft Article 23D notice for full details of the changes the FCA will impose on IBA regarding the way that the 1-, 3- and 6-Month sterling and Japanese yen LIBOR settings are to be determined after December 31, 2021. The FCA will require IBA to publish each “synthetic” LIBOR setting at or around 11:55 am London time on each applicable London business day, except for London public holidays (as is the case for “panel bank” LIBOR).
2 The ICE Term SONIA Reference Rate, which is a forward-looking term SONIA reference rate, provided by IBA.
3 With respect to each "synthetic" LIBOR setting, the fixed spread adjustment that applies as part of the ISDA IBOR fallback for each LIBOR setting, and that is published for the purpose of the ISDA 2020 IBOR Fallbacks Protocol and ISDA IBOR Fallbacks Supplement.
4 The Tokyo Term Risk Free Rate, which is a forward-looking term TONA rate, provided by Quick Benchmarks Inc.
The FCA notified IBA that it has designated these six LIBOR settings as “Article 23A benchmarks” for the purposes of the BMR with effect from January 1, 2022, which it must do in order to enable it to require these changes. The FCA also noted that the first non-representative publication of these six “synthetic” LIBOR settings under the changed, unrepresentative, “synthetic” methodology will be on January 4, 2022.
The FCA has also confirmed that it expects that the Overnight and the 1-, 3-, 6- and 12-Month U.S. dollar LIBOR settings will continue to be published on a representative basis, using panel bank submissions under the current “panel bank” LIBOR methodology, until the end of June 2023. The FCA has advised that it will continue to consider the case for using its new and enhanced legal powers to require IBA to continue the publication of the 1-, 3- and 6-Month U.S. dollar LIBOR settings beyond June 30, 2023 under a changed, “synthetic”, unrepresentative methodology.
Under the BMR, new use of Article 23A benchmarks, including the “synthetic” 1-, 3- and 6-Month sterling and Japanese yen LIBOR settings, by UK-supervised entities in regulated financial contracts, instruments and/or investment fund performance measurement will be prohibited. The FCA has published a statement of policy in relation to its power to permit the continued legacy use of Article 23A benchmarks by UK-supervised entities in equivalent circumstances. Following a consultation, on November 16, 2021, the FCA confirmed it will permit all legacy use of 1-, 3- and 6-Month sterling and Japanese yen “synthetic” LIBOR by UK-supervised entities other than in “Cleared Derivatives” (whether directly or indirectly cleared).
The FCA has also published a statement of policy in relation to its power to prohibit the new use of a critical benchmark the provision of which is to cease. The FCA confirmed on November 16, 2021, following consultation, that from January 1, 2022 it will prohibit the new use by UK-supervised entities in regulated financial contracts, instruments and/or investment fund performance measurement of the continuing Overnight and 1-, 3-, 6- and 12-Month U.S. dollar LIBOR settings, subject to certain exceptions.
The FCA has published the modifications it proposes to make to the BMR as it will apply to 1-, 3- and 6-Month Sterling and Japanese Yen “synthetic” LIBOR, having regard to the effects of its designation of these six settings as “Article 23A benchmarks” and the imposition of its proposed changes to the methodology for these settings. These modifications are proposed to take effect from January 1, 2022.
About ICE Benchmark Administration
ICE Benchmark Administration is authorized and regulated by the Financial Conduct Authority for the regulated activity of administering a benchmark, and is authorized as a benchmark administrator under the UK Benchmarks Regulation. LIBOR and ICE Benchmark Administration are registered trademarks of IBA and/or its affiliates.
About Intercontinental Exchange
Intercontinental Exchange, Inc. (NYSE: ICE) is a Fortune 500 company that designs, builds and operates digital networks to connect people to opportunity. We provide financial technology and data services across major asset classes that offer our customers access to mission-critical workflow tools that increase transparency and operational efficiencies. We operate exchanges, including the New York Stock Exchange, and clearing houses that help people invest, raise capital and manage risk across multiple asset classes. Our comprehensive fixed income data services and execution capabilities provide information, analytics and platforms that help our customers capitalize on opportunities and operate more efficiently. At ICE Mortgage Technology, we are transforming and digitizing the U.S. residential mortgage process, from consumer engagement through loan registration. Together, we transform, streamline and automate industries to connect our customers to opportunity.
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Source: Intercontinental Exchange