Article 23D Benchmarks Regulation – 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 and EventID 21833 for the final notice), the Financial Conduct Authority has published another 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 beginning July 1, 2023 in order to facilitate the publication of a synthetic, non-representative version of the three tenors up to September 30, 2024.
Specifically, in the notice, the FCA exercises its powers under article 23D and requires 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).