Refinitiv launches USD IBOR cash fallbacks prototype

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Following 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, Refinitiv has launched a prototype rate. 

The Refinitiv USD IBOR Cash Fallbacks, as the rates will be known, will leverage the firm’s extensive experience in administering benchmarks, such as Refinitiv Term SONIA, to create a family of US Dollar (USD) fallback rates for use in cash markets.
 
The London InterBank Offered Rate (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 5 March, 2021 the Financial Conduct Authority (FCA) announced that 1-week and 2-month US Dollar LIBOR settings will cease immediately after 31 December, 2021 and the remaining tenors will either be no longer representative or immediately cease publication immediately following 30 June, 2023. The USD IBOR Cash Fallbacks prototype supports market participants including lenders and borrowers with their migration away from USD LIBOR.
 
There are two versions of the Refinitiv USD IBOR Cash Fallbacks: one for consumer cash products, the other for institutional cash products. Both will be published to 5 decimal places.
 
Refinitiv USD IBOR Consumer Cash Fallbacks are based upon compound SOFR in advance plus the spread adjustment, which will gradually be introduced during the 12 months immediately following 30 June, 2023. Refinitiv USD IBOR Consumer Cash Fallbacks will be published in one-month, three-month and six-month tenors, both with and without a floor.
 
There are a number of different versions of the Refinitiv USD IBOR Institutional Cash Fallbacks. The Adjusted SOFR component includes SOFR compound in arrears, Daily Simple SOFR and SOFR compound in advance. Each of the SOFR compound in arrears and Daily Simple SOFR rates will be available with and without a lookback, observational shift, and lockout. Added to this is the spread adjustment and unlike the Refinitiv USD IBOR Consumer Cash Fallbacks there is no transition period.  Refinitiv USD IBOR Institutional Cash Fallbacks will be published in up to 7 tenors including overnight, 1-week, 1-month, 2-month, 3-month, 6-month and 12-month.
 
Jacob Rank-Broadley, Head of LIBOR Transition, Benchmarks & Indices at Refinitiv, says: “We are delighted to have worked with the ARRC and the Federal Reserve to produce a family of prototype fallback rates for cash products that can support the industry migration of existing exposures away from USD LIBOR.”
 
Sang Lee, Managing Partner at Aite Group, says: “With an estimated USD5 trillion of business loans, consumer loans, bonds and securitisation exposures referencing USD LIBOR after June 2023 its essential that suitable fallback rates are available to ensure the continued efficient functioning of our financial system. These rates bring together extensive work by the ARRC and an experienced benchmark administrator in order to produce robust fallback rates that the industry can rely on.”
 
Firms are able to immediately commence evaluation of the behavior and suitability of the prototype as well as test technical integration. Refinitiv USD IBOR Cash Fallbacks prototype are available free of charge 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.