Welcome to the latest issue of Mayer Brown's IBOR Transition Digest-a periodic compendium of global regulatory and market developments and insights on the complex issues confronting financial market participants as they plan to transition from LIBOR and its variants to replacement benchmark interest rates. As attention to IBOR transition accelerates and becomes more focused, it is critical to have access to comprehensive and timely resources about the market.
For additional resources and an introduction to our global cross-practice IBOR Transition Task Force, please visit Mayer Brown's IBOR Transition portal.
LEGAL UPDATE
Third Meeting of US Credit Sensitivity
Group Examines Possible Design and Data Sources for a More
Credit-Sensitive Spread Adjustment
In Brief, 9 September 2020
The Credit Sensitivity Group-market participants convened
by the New York Federal Reserve Bank and the Federal Reserve Board
to support the ARRC's IBOR transition work-met for a third time
on August 12. Discussion focused on the design of a credit spread
adjustment and the appropriate data source to build such an
adjustment.
NEWS AND DEVELOPMENTS
United States - Syndicated and Bilateral Loans
Updated ARRC Recommended Best Practices
for Completing the Transition from LIBOR
and Updated Best Practices Fact
Sheet
ARRC, 3 September 2020
ARRC updated its May 2020 recommended Best Practices to
clarify the timelines and interim milestones that the ARRC believes
are appropriate for transitioning away from USD LIBOR in a way that
will minimize market disruption and support a smooth transition
through the broad voluntary adoption of the SOFR. The refreshed
Best Practices also reflect the updated bilateral business loan
fallback language recommendations issued on 27 August.
RFP for Vendor to Publish ARRC-Recommended
LIBOR Fallback Spread Adjustments and Spread-Adjusted
Rates
ARRC, 2 September 2020
The ARRC is seeking one or more firms to publish daily
indicative spreads and, after a trigger event has occurred, static
spreads and spread-adjusted fallback rates for cash products that
transition away from U.S. dollar LIBOR.
United States - Derivatives
Letter to IRS and Treasury Requesting
Guidance Regarding Financial Contract Discount Rate
Transition
ARRC, 4 September 2020
The transition to SOFR discounting for cleared derivatives
is a key step in the overall transition from LIBOR to SOFR, but
because, for a large number of derivative contracts, the transition
involves a shift from the effective federal funds rate
("EFFR"), instead of an interbank offered rate (an
"IBOR"), Proposed Treasury Regulations section 1.1001-6
(the "Proposed Regulations") does not apply. In
order to fill this gap in guidance, the ARRC recommends that the
final version of the Proposed Regulations apply to the transition
to SOFR discounting by treating EFFR as an IBOR for this limited
purpose.
United Kingdom - Loans
Statement on behalf of the Working Group on
Sterling Risk-Free Reference Rates - Recommendations for SONIA Loan
Market Conventions and Detailed Loans Conventions
Bank of England Working Group on Sterling Risk-Free
Reference Rates, 4 September 2020
The Working Group has issued its recommendations on
conventions (including practical examples of lookbacks and
observation shifts) to support the use of SONIA in loan markets for
Sterling Bilateral and Syndicated Facilities, including
Multicurrency Syndicated Facilities where there is a sterling
currency option, with the aim of helping market participants be
ready to offer non-LIBOR loan products by the end of 3Q2020.
Asia and Pacific Rim - Loans and Floating Rate Notes
Compounded Singapore Overnight Rate
Average Index ("SORA Index"), Compounded SORA and
MAS Floating Rate Notes ("MAS FRN"): A User
Guide
Monetary Authority of Singapore, 1 September
2020
Explaining calculation methodologies, the terms of MAS
floating rate notes, and the treatment of negative coupon
rates.
Asia and Pacific Rim - Derivatives
SC-STS Outlines Role of Fallback Rate
Arrangements for SOR Derivatives and
new webpage dedicated to
the role of fallbacks in benchmark transition
Steering Committee for SOR Transition to SORA, 1
September 2020
SC-STS outlined its views on the role played by fallback
rates in the ongoing transition from SOR to SORA, reiterated its
support for the use of fallback rates, and established a dedicated
web page addressing Swap Offered Rate discontinuance and
contractual fallbacks.
Asia and Pacific Rim - General
Financial Institutions' Preparedness
for LIBOR Cessation and Future Actions with a Focus on the Results
of the Joint Survey by the Financial Services Agency and the Bank
of Japan
Bank of Japan, 11 August 2020
Highlighting the results of the first round of the
October-December 2019 joint survey, which covered qualitative
information, such as the managerial framework and allocation of
staff to prepare for LIBOR cessation and the status of preparedness
of business operations in the individual divisions of financial
institutions.
Singapore Overnight Rate Average
("SORA") - Key Features and Calculation
Methodology
MAS, 5 August 2020
Includes descriptions of governance, reporting, and
oversight.
UPCOMING EVENTS
Replays of all of our IBOR Transition Webinar Series presentations are available via iTunes podcasts, Google play or Spotify, as well as on the IBOR Transition Webinar Series page of our dedicated IBOR Transition portal.
What Investment Advisers Need to Know:
GDPR, ESG, US Privacy & Cybersecurity and LIBOR
Mayer Brown 14th Annual Investment Management
Regulatory University, 9 September 2020 at 12pm EDT
Please join Mayer Brown lawyers Stephanie Monaco, Leslie
Cruz, Chris Chapman, Oliver Yaros, Paul Forrester and Jeff Taft at
the second session of our Annual Investment Management Regulatory
University, during which they will discuss, among other topics,
"LIBOR: What is at stake with the world's most
important number going away on December 31, 2021, and are you
ready?" CLE credit is pending for this event.
SIFMA Compliance and Legal Virtual
Forum
Securities Industry and Financial Markets
Association, 23-24 September 2020
As part of this two-day conference, Mayer Brown partner
Marlon Paz will lead an on-demand session for participants on
Broker-Dealer Issues & Considerations Relating to LIBOR
Cessation.
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This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.