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    EC Publishes Draft Rules on Replacement Rates for EONIA and CHF LIBOR

    August 03, 2021

    The European Commission (EC) published a draft implementing regulation on the designation of a replacement for the European Overnight Index Average (EONIA) benchmark in contracts and financial instruments, as referred to in Article 23a of Benchmarks Regulation (2016/1011). The Euro short-term rate (€STR) as published by the European Central Bank (ECB) is designated as replacement for EONIA. The fixed spread adjustment that shall be added to the designated replacement rate shall be equal to 8,5 basis points. The Regulation shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union. The draft regulation is open for feedback until August 31, 2021 and the Regulation shall apply as of January 03, 2022.

    EC also published a draft implementing regulation on the designation of a statutory replacement for certain settings of Swiss franc London Interbank Offered Rate (CHF LIBOR). The following rates are designated as replacement for the CHF LIBOR in references to CHF LIBOR in contracts and financial instruments as referred to in Article 23a of Benchmarks Regulation:

    • 1-month CHF LIBOR is replaced by 1-month compounded Swiss Average Rate Overnight (SARON), as observed over the 1-month period preceding the interest period
    • 3-month CHF LIBOR is replaced by 3-month compounded SARON, as observed over the 3-month period preceding the interest period
    • 6-month CHF LIBOR is replaced by 6-month compounded SARON, as observed over the 6-month period preceding the interest period
    • 12-month CHF LIBOR is replaced by 12-month compounded SARON, as observed over the 12-month period preceding the interest period

    A fixed spread adjustment shall be added to these designated replacement rates. That fixed spread adjustment shall be equivalent to the spread published for each relevant tenor and calculated on March 05, 2021 as a historical median spread between the CHF LIBOR concerned and the respective SARON compounded over a five-year lookback period for each particular term. Credit institutions and other financial institutions that are a party to a CHF LIBOR contract shall inform their counterparts of the change in the rate and the effects on their contracts in writing and not later than thirty days before the statutory replacement rate starts to apply. The Regulation shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union. This Regulation shall apply as of January 01, 2022. The draft regulation is open for feedback until August 31, 2021.

     

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    Comment Due Date: August 31, 2021

    Effective Date: OJ+20 Days

    Keywords: Europe, EU, Banking, Securities, Interest Rate Benchmarks, EONIA, €STR, LIBOR, CHF LIBOR, Benchmarks Reforms, Benchmarks Regulation, SARON, ECB, EC

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