November 30, 2021
Refinitiv Launches USD IBOR Institutional Cash Fallbacks in Production to Facilitate Industry Transition from USD LIBOR
NEW YORK / LONDON / SINGAPORE – Refinitiv today announces that USD IBOR Institutional Cash Fallbacks are now production benchmarks, and it will launch USD IBOR Consumer Cash Fallbacks 1-week and 2-month settings on January 3, 2022 – pending Refinitiv Benchmark Services (UK) Limited (“RBSL”) board approval. This follows the Alternative Reference Rates Committee’s (ARRC) March 2021 announcement that it had selected Refinitiv to publish its recommended spread adjustments and spread adjusted rates for cash products and Refinitiv’s August 2021 announcement that it had released prototype rates.
LIBOR underpins hundreds of trillions of dollars of financial instruments and contracts, making it one of the most widely used benchmarks in the world. On March 5, 2021 the Financial Conduct Authority (FCA) announced that 1-week and 2-month US Dollar LIBOR settings will cease immediately after December 31, 2021 and the remaining tenors will either be no longer representative or cease publication immediately following June 30, 2023.
The USD IBOR Cash Fallbacks produce the rates described in the ARRC’s recommended fallback language. In conjunction with legislation such as the New York law, this helps existing legacy USD LIBOR contracts smoothly transition once USD LIBOR is no longer available. The USD IBOR Cash Fallbacks provide market participants, including lenders and borrowers, with an industry standard agreed rate, which can clearly and easily be referenced in contracts.
There are two versions of the Refinitiv USD IBOR Cash Fallbacks: one for institutional cash products, the other for consumer cash products.
Refinitiv USD IBOR Institutional Cash Fallbacks are now available for use in financial and nonfinancial corporate contracts and include a number of different versions. The adjusted SOFR component includes SOFR compounded in arrears, daily simple SOFR and SOFR compounded in advance. Each of the SOFR compounded in arrears and daily simple SOFR rates are available with and without a lookback, observational shift, and lockout. Added to this is a static spread adjustment. Refinitiv USD IBOR Institutional Cash Fallbacks are published in up to 7 tenors including overnight, 1-week, 1-month, 2-month, 3-month, 6-month and 12-month.
Refinitiv USD IBOR Consumer Cash Fallbacks are based upon compounded SOFR in advance plus the spread adjustment, which is gradually introduced during the 12 month transition period immediately following LIBOR cessation or permanent loss of representativeness. The rates are available with and without a floor. Pending RBSL board approval, from January 3, 2022, the 1-week and 2-month settings will be available for use in financial contracts. Prior to becoming production benchmarks, the USD IBOR Consumer Cash Fallbacks remain prototypes and should not be used for any purpose other than testing including as a reference, index or benchmark in financial instruments or financial contracts. It is expected, subject to RBSL approval, following June 30, 2023 the 1-month, 3-month and 6-month settings will transition to production benchmarks and be available for use in financial contracts.
Refinitiv plans to introduce forward-looking SOFR term rate versions of these rates in due course.
Jacob Rank-Broadley, Head of LIBOR Transition, Benchmarks & Indices at Refinitiv said: “The introduction of production Refinitiv USD IBOR Institutional Cash Fallbacks can support trillions of dollars of legacy cash contracts to smoothly transition away from USD LIBOR. 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 official launch of Refinitiv’s Institutional Cash Fallbacks gives market participants another important tool to ensure the stability of legacy contracts that contain ARRC-recommended fallback language. With exactly one month to go before no new LIBOR, we urge market participants to take action now to ensure a smooth transition.”
Firms 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.
For more information about the Refinitiv USD IBOR Cash Fallbacks, please visit here.
Refinitiv has many years’ experience designing, calculating, governing, administering and publishing financial benchmarks that lie at the heart of the global financial system. For more information about Refinitiv benchmarks, visit here.
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