Refinitiv to Launch USD Ibor Fallbacks to Facilitate Shift to RFRs

Refinitiv has announced that USD Ibor Institutional Cash Fallbacks are now production benchmarks, and it will launch USD Ibor Consumer Cash Fallbacks one-week and two-month settings on January 3, 2022 – pending Refinitiv Benchmark Services (UK) Limited board approval.

The move follows the US 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.

On 5 March 2021 the UK’s Financial Conduct Authority (FCA) announced that one-week and two-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, Refinitiv says this helps existing legacy USD Libor contracts smoothly transition once the benchmark is no longer available. The Fallbacks provide market participants, including lenders and borrowers, with an industry standard agreed rate, which can clearly and easily be referenced in contracts, it adds.

There are two versions of the Fallbacks: one for institutional cash products, the other for consumer cash products.

The Institutional Cash Fallbacks are now available for use in financial and non-financial 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. The Fallbacks are published in up to seven tenors including overnight, one-week, and one, two, three, six and twelve months.

The 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 one-week and two-month settings will be available for use in financial contracts.

Prior to becoming production benchmarks, Refinitiv says the 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 one-month, three-month and six-month settings will transition to production benchmarks and be available for use in financial contracts, the company adds, also noting that it plans to introduce forward-looking SOFR term rate versions of these rates in due course.

“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,” says Jacob Rank-Broadley, head of Libor transition, benchmarks & indices at Refinitiv. “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 chair and vice chair of institutional securities at Morgan Stanley, adds, “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.”