Refinitiv Launches Term Rate USD IBOR Cash Fallbacks07.13.2022
Refinitiv announces that it intends to launch forward looking term rate versions of its ARRC recommended fallback rates – USD IBOR Cash Fallbacks – in September 2022. This follows the Alternative Reference Rates Committee’s (ARRC) March 2021 announcement that it had selected Refinitiv to publish its recommended fallback rates for cash products and Refinitiv’s November 2021 announcement that it had released production fallback rates based upon various SOFR conventions.
LIBOR is one of the most widely used benchmarks in the world. On March 5, 2021, the Financial Conduct Authority (FCA) announced that immediately following June 30, 2023, overnight, 1-month, 3-month, 6-month and 12-month US Dollar LIBOR settings will cease or be no longer representative.
There are trillions of dollars of cash products such as loans, bonds and securitized products that reference LIBOR and mature after June 30, 2023, which will use the ARRC’s recommended fallback rates through use of appropriate fallback language or New York and Federal laws.
USD IBOR Cash Fallbacks will help these legacy USD LIBOR contracts to smoothly transition away from USD LIBOR and provide market participants, including lenders and borrowers, with an industry standard agreed rate, which can clearly and easily be referenced in contracts.
Refinitiv announces that it intends to launch forward-looking term rate versions of USD IBOR Cash Fallbacks in September 2022. These rates will be based upon CME Term SOFR plus the ARRC’s recommended spread adjustments. There are two versions of the Refinitiv USD IBOR Cash Fallbacks: one for institutional cash products, the other for consumer cash products. The term rate versions of both USD IBOR Cash Fallbacks will be available as all-in spread adjusted rates in 1-month, 3-month 6-month and 12-month tenors.
Forward looking term rate versions of USD IBOR Institutional Cash Fallbacks will be launched as production benchmarks and USD IBOR Consumer Cash Fallbacks will initially be launched as prototype rates with the intention that these rates will enter production immediately following June 30, 2023, when the ARRC’s recommended spread-adjustments for consumer products will be officially set.
Servicers seeking to communicate plans to move to the ARRC-recommended consumer fallbacks after June 30, 2023, can refer to the Refinitiv USD IBOR Consumer Cash Fallback 1-Month, Refinitiv USD IBOR Consumer Cash Fallback 3-Month, Refinitiv USD IBOR Consumer Cash Fallback 6-Month, and Refinitiv USD IBOR Consumer Cash Fallback 12-Month respectively.
Consumers can be directed to https://www.refinitiv.com/usdiborconsumercashfallbacks to see the ARRC-recommended consumer fallback rates and the most recent rate history. The ARRC’s recommended USD IBOR Consumer Cash Fallbacks are unfloored. Refinitiv also publish a version of its fallbacks where the all-in rate is floored at zero – USD IBOR Consumer Cash Fallbacks Floored – which may be suitable where contractual fallbacks refer to a floored rate.
Since November 2021, Refinitiv USD IBOR Institutional Cash Fallbacks based upon SOFR compounded in arrears, daily simple SOFR in arrears and SOFR compounded in advance plus a spread adjustment have been available for use in financial and nonfinancial corporate contracts. Refinitiv also produces USD IBOR Consumer Cash Fallbacks based upon compounded SOFR in advance plus a spread adjustment. Except for the 1-week and 2-month USD IBOR Consumer Cash Fallbacks these consumer rates are prototypes.
Jacob Rank-Broadley, Head of LIBOR Transition, Benchmarks & Indices at Refinitiv said: “The addition of term rate versions of Refinitiv USD IBOR Cash Fallbacks completes the existing suite of fallback rates for cash products. Market participants can now start confidently transitioning legacy contracts away from USD LIBOR and onto the ARRC’s recommended fallback rates without delay. These rates provide the industry with an efficient solution that reduces the operational burden on market participants and protects legacy contracts once LIBOR is no longer available.”
Tom Wipf, ARRC Chairman and Vice Chairman of Institutional Securities at Morgan Stanley said: “The ARRC has worked closely with consumer advocacy groups and with lenders and other key stakeholders in developing its recommended fallback rates for consumer loans, and believes that Refinitiv’s publication of these ARRC-recommended fallback rates will provide an essential tool for a smooth transition. Refinitiv’s rates can also be a useful tool for other cash products, and we are pleased to see them move towards publication.”
Firms and individuals are able to receive Refinitiv USD IBOR Cash Fallbacks through the full suite of Refinitiv products, including Refinitiv Workspace, Refinitiv Eikon, Refinitiv Real-Time and Refinitiv DataScope as well as via the Refinitiv website. From September, forward looking term rate versions will also be available through these channels.
For more information about the Refinitiv USD IBOR Cash Fallbacks, please visit here.
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