May 20, 2024

Term €STR

Answering questions on Euro rate reform and regulatory expectations

The need for interest rate reforms led to the complete decommission of LIBOR in 2023. Working groups came together around Euro interest rates, and the industry responded with new, more robust offerings, but with no clear end date, there are still questions about what is expected.

In 2018, the European Central Bank (ECB), together with the Belgian Financial Services and Markets Authority (FSMA), the European Securities and Markets Authority (ESMA) and the European Commission, working group recommended that the (overnight) euro short-term rate (called “€STR”) be used as the risk-free rate for the euro area. €STR has been published daily (excluding weekends and holidays) since 2 October 2019. But why are we still talking about it in 2024?

Points of differentiation:

  • The last decade’s work on benchmark interest rate reform has centred on making benchmarks reliable, accurate and — as far as possible — immune to attempts at potential manipulation
  • The specification of a range of risk-free rates has helped anchor benchmarks in observable transactions from a broad cross-section of market participants
  • However, as they are based on overnight transactions, RFRs do not meet the needs of financial market participants who need to know future interest rates

Key takeaways:

  • What is €STR, the euro risk-free rate (RFR)?
  • What are the principal differences between €STR and IBOR benchmarks?
  • What are “forward-looking” or “Term” Risk Free Rates?
  • What is distinctive about the FTSE Russell approach to Term €STR?
  • What are fallback rates and why do we need them?
  • Who should use Term €STR?
  • How does Term €STR help meet the challenges of benchmark rate reform?

Why switch now to Term €STR?

FTSE Term €STR is a regulatory compliant benchmark available for immediate production use.

Switching now to Term €STR can help enhance legal certainty and compliance with the European Benchmark Regulation, as well as preparing for the possible future discontinuation of legacy benchmarks.