IBOR Cessation Updates: The Key Facts and Dates
(As redacted from the ISDA® website and announcements)
On 4 December 2020, following discussions with The Financial Conduct Authority in the UK ICE Benchmark Administration Limited (IBA) announced that it intends to cease publication of the below benchmarks:
The following LIBOR settings, to take effect after the publication of LIBOR on Friday, December 31, 2021:
o EUR LIBOR-all tenors (Overnight, 1 Week, 1, 2, 3, 6 and 12 Months) o CHF LIBOR-all tenors (Spot Next, 1Week,1, 2, 3, 6 and 12 Months) o JPY LIBOR-all tenors (Spot, Next, 1 Week,1, 2, 3, 6 and 12 Months)
o GBP LIBOR-all tenors (Overnight,1Week,1, 2, 3, 6 and 12 Months)
o USD LIBOR-1 Week and 2 Months; and
The following LIBOR settings, to take effect after the publication of LIBOR on Friday, June 30, 2023:
o USD LIBOR-Overnight and 1, 3, 6 and 12 Months
On 5 March 2021, The Financial Conduct Authority in the UK reiterated the above and announced the following:
1. That certain LIBOR settings (all seven euro and Swiss franc LIBOR tenors, overnight, one-week, two-month and 12-month sterling LIBOR, spot next, one-week, two-month and 12-month yen LIBOR, and one-week and two-month US dollar LIBOR) will permanently cease immediately after December 31, 2021.
2. Publication of the overnight and 12-month US dollar LIBOR settings will permanently cease immediately after June 30, 2023.
3. It will consult on requiring ICE Benchmark Administration (IBA), the administrator of LIBOR, to continue publishing one-month, three-month and six-month sterling LIBOR on a non-representative, synthetic basis for a further period after the end of 2021, and one-month, three-month and six-month yen LIBOR on a non-representative, synthetic basis for an additional year after end-2021, under proposed new powers included in the Financial Services Bill.
4. The FCA will also consider whether to require IBA to continue publishing one-month, three-month and six-month US dollar LIBOR on a non-representative, synthetic basis for a further period after the end of June 2023
5. The fallbacks (ie, to the adjusted risk-free rate plus spread) will automatically occur for outstanding derivatives contracts that incorporate the IBOR Fallbacks Supplement or are subject to adherence of the ISDA® 2020 IBOR Fallbacks Protocol on the following dates:
After December 31, 2021: For outstanding derivatives referenced to all euro, sterling, Swiss franc and yen LIBOR settings.
After June 30, 2023: For outstanding derivatives referenced to all US dollar LIBOR settings. Under the fallbacks methodology, the rate for the one-week and two-month US dollar LIBOR settings will be computed by each calculation agent using linear interpolation between end-2021 and June 30, 2023, before falling back to the adjusted risk-free rate plus spread after June 30, 2023.
This announcement confirms that all thirty-five LIBOR settings will either cease to be provided by any administrator or no longer be representative after the dates set out above.
The FCA statement has resulted in certain contractual triggers for the calculation and future application of fallbacks that are activated by pre-cessation or cessation announcements made by the FCA (howsoever described) in contracts. In other words the pre-cessation event trigger in the ISDA® IBOR Fallback Protocol has triggered as a result of this announcement and the fallback rates prescribed in the Protocol will apply after the above dates.