20 years: Interest rate benchmarks
In this video, John tells us what the market participants must do and plan for in the rest of 2021. He outlines the further developments surrounding LIBOR that we can expect in 2021 and when “synthetic LIBORs” might apply. The potential implications of moving from LIBOR to synthetic LIBORs is also explored.
In this video, John tells us what the market participants must do and plan for in the rest of 2021. He outlines the further developments surrounding LIBOR that we can expect in 2021 and when “synthetic LIBORs” might apply. The potential implications of moving from LIBOR to synthetic LIBORs is also explored.
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14 mins 8 secs
We can expect regulation and legislation that will mandate both the timing and manner of transition, but also hopefully provide assurance on what firms will need to do to be assured of safe harbour.
Key learning objectives:
What all market participants must do and plan for in the rest of 2021
What further developments we can expect in 2021
What “synthetic LIBORs” actually are, how they can be used, and potential implications of moving from LIBOR to synthetic LIBORs
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No-one should enter into new contracts referencing LIBOR after 2021.
The Federal Reserve-backed Alternative Reference Rates Committee has said that after June 2021, no-one should initiate new derivative trades, floating-rate securitisations or business loans referencing LIBOR maturing after 2021 unless such trades are for risk or default management of legacy LIBOR positions. They also state that no Collateralised Loan Obligations referencing Dollar LIBOR should be issued after September 2021.
All Swiss Franc LIBOR rates will cease at the end of 2021, but Swiss Franc LIBOR is widely used in EU Member States for consumer lending and retail mortgages. The Swiss National Bank has proposed its local Risk Free Rate – SARON, the Swiss Average Rate Overnight – as a replacement. In the second quarter of 2021, the FCA expects to consult on potential powers to compel publication of a synthetic LIBOR.
If produced, a synthetic LIBOR will only be available for use for pre-existing “tough legacy” contracts. It seems likely that any synthetic Sterling LIBOR will be the Risk Free Rate – SONIA – plus a spread or premium driven by data taken from the Overnight Index Swaps or “OIS” market.
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