Minutes
Introduction
Following the cessation of most LIBOR settings at the end of 2021, the Working Group on Sterling Risk-Free Reference Rates (the “Working Group”) concluded at its January meeting that it had met its objective to “catalyse a broad-based transition to SONIA across sterling derivative, loan and bond markets”.
Following this meeting, the Working Group confirmed that all Sub-Groups and Task Forces – except for the Bond Market Sub-Group, Loan Enablers Task Force and Communications and Outreach Sub-Group – would close as the Working Group moves into 2022 in a new form, with new objectives, and with continued support from the Bank of England and FCA.
The new overall objective is to assist in finalising the transition away from LIBOR, via:
- Supporting the continued active transition of legacy contracts from synthetic sterling LIBOR to SONIA, and
- Considering any implications of non-sterling LIBOR transition in UK markets.
To aid transparency in its new form, the Working Group will publish summaries of the meetings of its Sub-Groups and Task Forces. Please see below for summaries of recent meetings.
The Bond Market Sub-Group (the “BMSG”):
Chair: Paul Richards, ICMA
The BMSG met twice in the second half of 2022.
At the BMSG meeting on 20 September, members discussed progress on the active transition of legacy synthetic sterling LIBOR bonds to SONIA and legacy US dollar LIBOR bonds under English law to SOFR. Following the deadline for responses to FCA CP 22/11 on Winding Down Synthetic Sterling LIBOR and US Dollar LIBOR, the BMSG meeting took place ahead of the announcement by the FCA on 29 September that 1- and 6-month synthetic sterling LIBOR would cease permanently after 31 March 2023. The BMSG noted that, while responses to FCA CP 22/11 by individual firms were generally confidential, a number of responses to FCA CP 22/11 by trade associations involved in the international capital markets had been published. These responses were summarised in the papers for the meeting.
The BMSG discussed technical issues in transitioning legacy LIB0R bonds under English law. It was agreed that there was a need to focus on active transition of legacy LIBOR bonds with traditional Type 1 fallbacks, as they would fall back to a fixed rate on permanent cessation of LIBOR. There was a discussion on how best to address uncertainty about dealer polls typically seen in traditional Type 1 fallbacks in legacy US dollar LIBOR bonds under English law, bearing in mind that dealer polls were addressed by the LIBOR Act under federal US law. The BMSG also discussed the effect of the cessation of the US dollar LIBOR ICE Swap Rate on 30 June 2023 on legacy US dollar bonds under non-US law, taking into account the ARRC recommendation in the US.
At the BMSG meeting on 29 November, members discussed the FCA’s statement on 23 November that the 3-month synthetic sterling LIBOR setting would cease after end-March 2024, and the BMSG also discussed the FCA’s proposal for synthetic US dollar LIBOR. Under the proposal, the FCA would require the publication of a synthetic US dollar LIBOR for 1-, 3- and 6-month settings when panel bank US dollar LIBOR ceases at end-June 2023 until the end of September 2024. CME Term SOFR plus the relevant ISDA fixed spread adjustment is the proposed methodology for a synthetic US dollar LIBOR, and all legacy contracts other than cleared derivatives would be permitted to use synthetic US dollar LIBOR. All BMSG members were encouraged to respond to the FCA’s consultation paper (CP 22/21) on synthetic US dollar LIBOR by the deadline of 6 January 2023.
At the meeting, the BMSG also reviewed progress on the active transition of legacy synthetic sterling LIBOR bonds to SONIA and legacy US dollar LIBOR bonds under English law to SOFR. Members noted that some of the remaining technical issues in transitioning legacy US dollar LIBOR bonds under English law discussed at the previous BMSG meeting would not arise while synthetic US dollar LIBOR continued to be published.