ECB Recommendations Address Impact of Transition from EONIA to €STR
ECB published report on a set of recommendations addressing the impact of transition from the euro overnight index average (EONIA) to the euro short-term rate (€STR). The recommendations take an operational and valuation perspective, taking into account EONIA’s wide use as a reference rate and as a collateral remuneration and cash flow discounting rate. The report, by the private sector working group on euro risk-free rates, analyzes various financial products and processes affected by the transition, covering secured and unsecured cash products, securities, investment funds, derivatives, and models referencing EONIA.
The report urges market participants to prepare for the change in the publication time of EONIA from day T at 19:00 CET to the next business day T+1 at 9:15 CET that will follow the change in EONIA’s methodology as of October 02, 2019 (representing transactions executed on October 01, 2019). Regarding the change in publication time of EIONIA resulting from the planned recalibration of EONIA as the €STR, plus a fixed spread of 8.5 basis points as at October 02, 2019, the working group encourages market participants, among other things, to:
- Screen the inventory of affected transactions and system environments to assess the modifications needed to cope with the change in the publication time of EONIA and prepare relevant teams for enhanced oversight during the cut-over period
- Design a communication strategy geared toward internal and external stakeholders (clients in particular) to ensure awareness of impending changes
- Consider adjusting the default settlement time (that is, the lag between the last fixing date and the settlement date) in certain cases
The report also urges market participants to prepare for the discontinuation of EONIA on January 03, 2022. In this context, the working group recommends, among other things, that:
- Market participants actively transition floating rate options (FROs) referencing EONIA to €STR FROs before the end of 2021
- Central counterparty (CCPs) clearing houses align their discounting switch dates as much as possible to transition from an EONIA discounting regime to a €STR discounting regime and set the discounting switch date as early as possible, preferably toward the end of the second quarter of 2020
- Market participants introduce all necessary modifications to be able to issue, buy, trade, and manage new securities indexed to the €STR and avoid issuing new securities indexed to EONIA with maturities going beyond the transition period
Related Links
Keywords: Europe, EU, Banking, Securities, EONIA, €STR, Risk-Free Rates, Recommendations, CCPs, Interest Rate Benchmarks, ECB
Previous Article
PRA Publishes Business Plan for 2019-20Related Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.