Article 23D Benchmarks Regulation – Draft Notice of Requirements [pdf]

Following its decision to continue the publication of the 1-, 3- and 6-month US dollar LIBOR settings on a synthetic basis beyond June 30, 2023 (please see EventID #20544 for more information) and its decision to permit the continuous use of these LIBOR tenors in specified legacy contracts up to September 30, 2024 (please see EventID 20587), the Financial Conduct Authority has published another draft notice in this context. The notice is addressed at the benchmark administrator ICE Benchmark Administration Limited (IBA) and sets out the requirement of the IBA to alter the methods by which the three LIBOR tenors are computed, once their designations as article 23A benchmarks have been verified and become effective. Article 23A designations are used for the orderly wind-down of benchmarks whose representativeness can no longer be ensured.
Specifically, in the draft notice, the FCA would exercise its powers under article 23D and require the benchmark administrator to apply the following computation methodology to the above noted US dollar LIBOR versions to determine a corresponding synthetic US dollar LIBOR version – as quoted:
– the 1-month US dollar Libor shall be calculated as the sum of the CME 1-month Term SOFR (Secured Overnight Financing Rate) Reference Rate and the ISDA Spread Adjustment for that tenor;
– the 3-month US dollar LIBOR is to be calculated as the sum of the CME 3-month Term SOFR Reference Rate and the ISDA Spread Adjustment for 3-month US dollar LIBOR; and
– the 6-month US dollar LIBOR is to be calculated as the sum of the CME 6-month Term SOFR Reference Rate and the ISDA Spread Adjustment for 6-month US dollar LIBOR.
It shall be noted in this context that the use of those synthetic US dollar Libor terms is limited to legacy contracts only (excluding cleared derivatives), as the designation of the versions as article 23A critical benchmarks indicates that they do no longer represent the underlying market that LIBOR was intended to measure.