BMO has established the IBOR Transition Office to lead and coordinate transition efforts for the bank and to ensure efficiency and a positive client experience. While the breadth of the change is wide-reaching, by working in collaboration with our clients, BMO expects that we will be able to successfully move forward together.
What is IBOR/LIBOR?
Interbank Offered Rates (IBORs), including the London Interbank Offered Rate (LIBOR), are the rates at which banks can borrow in the interbank market on an unsecured basis. LIBOR is the most widely-used and well-known interest rate benchmark, and is calculated based on submissions from individual panel banks. LIBOR is published daily in five currencies (British Pound Sterling (GBP), U.S. Dollar (USD), Euro (EUR), Swiss Franc (CHF) and Japanese Yen (JPY)) and seven maturities (overnight, one week, one month, two months, three months, six months, and one year). Other IBORs impacted by the transition include: the Tokyo Interbank Offered Rate (TIBOR), the EUR Interbank Offered Rate (EURIBOR), and the Canadian Dollar Offered Rate (CDOR).
Why is LIBOR Going Away?
LIBOR’s sustainability and integrity have increasingly been called into question for two reasons: (1) a decline in the interbank unsecured funding market has led to a lack of actual transaction data upon which to calculate the rates; and (2) the ease with which it has been manipulated, most notably during the 2012 LIBOR scandals, has led to a deterioration of the confidence in the rate setting process. The UK Financial Conduct Authority announced in July 2017 it would no longer compel banks to contribute to LIBOR after December 31, 2021.
What’s Next? Alternative Reference Rates
Regulators and global industry working groups have spent the last few years focused on identifying Alternative Reference Rates (ARRs) derived from transactional data to serve as eventual IBOR replacements. Jurisdictions around the globe have since selected ARRs based on transactions in overnight funding markets. The following rates have been selected for each jurisdiction:
United States: SOFR
United Kingdom: SONIA
Canada: Enhanced CORRA
Firm’s will face significant operational and infrastructure updates, including technology, risk modeling, underlying legal documentation, volume of legacy contracts, hedging implications, and possible accounting issues. BMO has established the IBOR Transition Office to ensure all areas of BMO are prepared for the transition and BMO’s clients are equipped for the industry and regulatory changes to come.
What Firms Should Start Thinking About
Despite industry efforts to guide market participants in this transition, individual firms will need to make their own plans for the transition. Key areas impacted by the transition include project governance/ management, exposure and impact analysis, risk management, contractual remediation and infrastructure/ technology readiness.
The content of this webpage reflects BMO’s current understanding of the IBOR Transition and is for informational purposes only. This information does not constitute and shall not be construed to constitute legal, financial, tax, accounting, or regulatory advice by BMO or its affiliates. BMO makes no representation as to the accuracy, completeness, suitability or timeliness of such information, which may also be subject to change.
The BMO IBOR Transition Newsletters are sent out monthly to clients. The purpose of this newsletter is to provide the latest updates and industry developments regarding the transition from IBORs to alternative nearly risk-free rates (RFRs). The newsletter provides summarized jurisdictional highlights from the global regulatory community, industry working groups, and various industry news sources. If you would like to receive these monthly newsletters please email IBOR.TransitionOffice@bmo.com to be added to the distribution list.
July 2021 Newsletter
June 2021 Newsletter
May 2021 Newsletter
April 2021 Newsletter
March 2021 Newsletter
February 2021 Newsletter
January 2021 Newsletter
December 2020 Newsletter
November 2020 Newsletter
October 2020 Newsletter
September 2020 Newsletter
August 2020 Newsletter
July 2020 Newsletter
June 2020 Newsletter
May 2020 Newsletter
April 2020 Newsletter
March 2020 Newsletter
February 2020 Newsletter
January 2020 Newsletter
BMO has prepared numerous educational and informational materials tailored to specific aspects of the transition which can be found below.
The LIBORious Transition to SOFR
An initial summary of the IBOR transition, with a specific focus on the transition from USD LIBOR to SOFR.
IBOR Transition Overview
The IBOR Transition Overview is a high level summary of the IBOR transition at BMO. This document covers background information, SOFR data, transition challenges, fallback language and BMO’s approach to tackling this transition.
Introduction to SONIA and €STR
The Introduction to SONIA and €STR takes a deep dive into all information related to the new ARRs in the UK and Europe. This document covers SOFR Issuance, comparing SOFR to LIBOR, and SOFR deal mechanics.
The SOFR 101 takes a deep dive into all information related to SOFR. This document covers SOFR Issuance, comparing SOFR to LIBOR, and SOFR deal mechanics.
The IBOR Fallbacks covers the extensive contract remediation that is related to the transition from IBORs to ARRs. This document covers a summary to fallbacks, the ISDA 2020 IBOR Fallbacks Protocol, and next steps for contract remediation.
IBOR Transition Newsflash: CCP Discounting Switch Newsflash (October 19, 2020)
On October 16, 2020 the CME and LCH both switched their USD discounting curves as well as the calculations for Price Alignment Interest (PAI) and Price Alignment Amount (PAA) on USD cash collateral and payments from Fed Funds to SOFR.
IBOR Transition Client Communication: ISDA Fallbacks Protocol (October 2020)
This letter serves to notify clients of the publication of the International Swaps and Derivatives Association (ISDA) 2020 IBOR Fallbacks Protocol and the Supplement to the 2006 ISDA Definitions, which were published on October 23, 2020.
IBOR Transition Newsflash: Industry Announcements on USD LIBOR (November 30, 2020)
A number of major industry announcements regarding the future of LIBOR were published on November 30, 2020, changing the landscape of the LIBOR Transition. Specifically, the ICE Benchmark Administration (IBA) announced its intention to consult in December on a proposed timing for the cessation of USD LIBOR.
IBOR Transition: What to Expect and How to Prepare Recording
BMO hosted a webinar on December 11, 2020 for BMO employees and clients. The recording covers an overview of the transition, major industry milestones, and managing IBOR linked contracts.
IBOR Transition: What to Expect and How to Prepare Materials
BMO hosted a webinar on December 11, 2020 for BMO employees and clients. The materials cover an overview of the transition, major industry milestones, and managing IBOR linked contracts.
ISDA's RFR Conventions and IBOR Fallbacks – Product Table
The ISDA RFR Conventions and IBOR Fallbacks Product Table sets out how the fallbacks in ISDA’s amended documentation would function for various different products, including certain non-linear products.
IBOR Transition Client Communication: ISDA Fallbacks Protocol (January 2021)
The International Swaps and Derivatives Association (“ISDA”) published the ISDA 2020 IBOR Fallbacks Protocol and Supplement to the 2006 ISDA Definitions on October 23, 2020.
FCA Announcement on the End of LIBOR
On March 5, 2021 the UK Financial Conduct Authority (FCA) made an official statement on the end of LIBOR. This letter serves to notify clients of the cessation dates for all LIBOR settings.
Fallback Language Trigger Event Notice
On March 5, 2021 the Financial Conduct Authority (FCA) made an official statement on the end of LIBOR. This letter serves to notify clients that may be a party to a loan agreement or note which reference LIBOR or CDOR where BMO is the sole lender or the administrative agent for a syndicate of lenders.
IBOR Transition Newsflash: Don’t Wait for a Forward-Looking Term SOFR (March 26, 2021)
The ARRC has stated that it is not in a position to recommend a forward-looking SOFR term rate by the original mid-2021 goal and cannot commit to one being recommended by year-end. The ARRC is encouraging market participants to not wait for a forward-looking term rate for new contracts, but to instead prepare to transition from LIBOR using the tools available now.
BMO: A Leader in SOFR Debt
This document outlines BMO's activity in the SOFR market.
IBOR Transition Newsflash: Bloomberg Short Term Bank Yield Index (May 18, 2021)
There has been a fundamental shift in the IBOR Transition, with more industry focus on Alternative Reference Rates other than SOFR. These rates, while seen as complementary or in addition to SOFR, were developed to address market needs by providing a series of credit sensitive reference rates that incorporate bank credit spreads and define forward term structures. Most notable is the Bloomberg Short Term Bank Yield Index or “BSBY”.
BMO Yankee CD indexed to the Bloomberg Short Term Bank Yield Index (June 1, 2021)
BMO has issued a Yankee CD linked to a new USD LIBOR alternative credit sensitive reference rate, the Bloomberg Short Term Bank Yield Index (“BSBY”).
IBOR Transition: Moving Towards Alternative Reference Rate Benchmarks Recording
BMO hosted a webinar on July 14, 2021 for BMO employees and clients. The recording covers information on Alternative Reference Rates (including BSBY, Term SOFR), market liquidity, pricing, and hedging with ARRs.
IBOR Transition: Moving Towards Alternative Reference Rate Benchmarks Materials
BMO hosted a webinar on July 14, 2021 for BMO employees and clients. The materials cover information on Alternative Reference Rates (including BSBY, Term SOFR), market liquidity, pricing, and hedging with ARRs.
In addition to the above materials, BMO continues to develop additional informational and educational items around this transition. For information on the various resources available please reach out to your BMO contact or the IBOR Transition Office (IBOR.Transitionoffice@bmo.com).
Industry groups have been established globally to assist market participants in the transition away from IBORs. The below are industry groups that have been established in different jurisdictions.
International Swaps and Derivatives Association (ISDA)
ISDA has published a central hub on its website with information on the transition from LIBOR and the adoption of alternative risk-free rates. This hub features updates on ISDA’s work on fallbacks and other benchmark initiatives, as well as research and analysis. The benchmarks hub serves as a one-stop shop for information from ISDA on benchmark reform.
Working Group on Sterling Risk-Free Reference Rates
The overall objective of the Working Group is to accelerate a broad-based transition to SONIA by end-2021 across sterling bond, loan and derivative markets, in order to reduce the financial stability risks arising from widespread reliance on LIBOR. The Working Group recommended the Sterling Overnight Indexed Average (SONIA) as the preferred sterling risk-free rate as it has capability to evolve over time, tends to be predictable and tracks Bank Rates closely. SONIA is already referenced in the sterling OIS market, making the transition easier. It measures the rate paid by banks on overnight funds and is calculated as a trimmed mean of rates paid on overnight unsecured wholesale funds.
Alternative Reference Rate Committee (ARRC)
The ARRC was convened in 2014 by the Federal Reserve to identify alternative reference rates to replace USD LIBOR and recommended the Secured Overnight Financing Rate (SOFR) as it preferred alternative rate. SOFR is an overnight, secured referenced rate administered by the Federal Reserve Bank of New York that broadly measures the cost of overnight borrowing with U.S. Treasuries as collateral. It is firmly based on transaction data and is calculated as a volume-weighted median of tri-party repo transactions.
Working group on Euro Risk-Free Rates
The European Central Bank (ECB), the Belgian Financial Services and Markets Authority (FSMA), the European Securities and Markets Authority (ESMA) and the European Commission launched a private sector working group on euro risk-free rates. The working group was tasked with identifying an alternative RFR to serve as a basis for an alternative to the current benchmarks used in a variety of financial instruments and contracts in the Euro area. The Working Group recommended €STR as its preferred nearly risk-free rate for the Euro area.
National Working Group on Swiss Franc Reference Rates (NWG)
The NWG on CHF Reference Rate is the key forum to reform reference interest rates in Switzerland. The Working Group selected SARON, which is an overnight reference rate of the secured funding market for Swiss franc and is based on transactions and quotes posted in the Swiss repo market.
Canadian Alternative Reference Rate Working Group
The Canadian Alternative Reference Rate Working Group (CARR) was created to identify and seek to develop a new term risk-free Canadian dollar interest rate benchmark. CARR has decided to enhance an existing rate, the Canadian Overnight Repo Rate Average (CORRA).
January 25, 2021
IBOR Fallbacks Supplement to the 2006 ISDA Definitions and the ISDA 2020 IBOR Fallbacks Protocol came into effect on January 25, 2021
December 31, 2021
Cessation of the publication of GBP, EUR, CHF, JPY LIBOR, as well as one-week and two-month USD LIBOR
January 1, 2021
GSEs will no longer purchase LIBOR-indexed Adjustable Rate Mortgages (ARMs)
June 30, 2021
Target for cessation of new use of USD LIBOR for business loans, securitization and derivatives
September 30, 2021
Target for cessation of new use of USD LIBOR for CLOs
June 30, 2023
Cessation of the publication of overnight and one-, three-, six- and 12-month USD LIBOR
January 11, 2021
The IBA launched their ICE Term SONIA Reference Rates
March 5, 2021
UK FCA released an announcement on the end of LIBOR
March 31, 2021
Cease initiation of new GBP LIBOR-linked loans, bonds, securitizations and linear derivatives* that expire after the end of 2021
April 01, 2021
BoE will increase haircuts on LIBOR-linked pre-positioned collateral
End Q2 2021
Cease initiation of new GBP LIBOR-linked non-linear derivatives* that expire after the end of 2021;
Cease initiation of new cross-currency derivatives with a LIBOR-linked sterling leg*, that expire after the end of 2021
End Q3 2021
Complete active conversion of all legacy GBP LIBOR contracts expiring after end 2021 where viable and, if not viable, ensure robust fallbacks are adopted
October 15, 2021
Eurex Clearing to implement a single-step conversion with cash compensation to €STR-flat for transactions referencing EONIA.
December 31, 2021
EMMI to cease publication of EONIA rates
* Except for risk management of existing positions
Key Dates updated as of April 14, 2021.
General Questions on IBORs and LIBOR
This document provides answers to some general questions on IBORs and LIBOR.
Questions on SOFR
This document provides answers to questions related to SOFR.
Questions on SONIA €STR and Enhanced CORRA
This document provides answers to questions related to SONIA, €STR and CORRA.
Questions on Contractual Fallback Language and the ISDA Protocol
This document provides answers to questions related to fallback language and the ISDA Protocol.
BMO US Business Banking LIBOR Transition FAQs
This document provides answers to questions related to BMO's US Business Banking products.
IBOR Risk Disclosure - Derivative Transactions
BMO is here as an informative resource around the IBOR transition and will periodically update this page as industry announcements and new developments occur.
For additional information and/or specific questions around the IBOR transition, please reach out to your BMO sales contact, relationship manager or the BMO IBOR Transition Office (IBOR.Transitionoffice@bmo.com).
The industry issuance provides detailed graphs on SOFR and SONIA issuance, SOFR and SONIA futures and weekly swap volumes.
This timeline depicts key upcoming milestones related to the IBOR Transition.
Additional information on the different RFRs in the UK, United States, Europe, Japan, Switzerland and Canada.