ECB published a report on the transfer of liquidity from the cash and derivatives products of the Euro Overnight Index Average (EONIA) to the Euro Short-Term Rate (€STR). This report aims to support a smooth transition from EONIA to the new €STR, taking advantage of the liquidity already present in the EONIA cash and derivatives market. It intends to provide guidance on how to ensure a liquid €STR cash and derivatives products market.
The report, by the private sector working group on euro risk-free rates, supplements a previous report from the working group on the impact of the transition from EONIA to the €STR on cash and derivatives products (published in August 2019) and provides clarifications on the topics that have been discussed since then. The working group highlights that contracts referenced to EONIA with maturities beyond January 03, 2022 would entail significant risks. It, therefore, recommends that market participants should replace EONIA products with €STR products and reduce their EONIA-linked legacy exposures as soon as possible.
To accelerate the transition process, market-makers are encouraged to proactively price in the €STR, rather than EONIA as their default, and central counterparties are recommended to consider developments in the nettability (compression) of the €STR and EONIA. The working group expects a full migration from EONIA-linked to €STR-linked products. It, therefore, recommends that
- the current EONIA market liquidity characteristics be used as a benchmark for building the initial target for the €STR
- market participants analyzing the available data assess the liquidity of the €STR derivatives market
Keywords: Europe, EU, Banking, Securities, EONIA, €STR, Risk Free Rates, CCPs, Interest Rate Benchmarks, Derivatives, ECB
Previous ArticleESMA Publishes Report on Trends, Risks, and Vulnerabilities in EU
Next ArticleESRB Publishes Report on Systemic Cyberattacks
APRA updated the lists of the Direct to APRA (D2A) validation and derivation rules for authorized deposit-taking institutions, insurers, and superannuation entities.
EC adopted a package that includes the digital finance and retail payments strategies and the legislative proposals for regulatory frameworks on crypto-assets and digital operational resilience.
ECB published an opinion (CON/2020/22) on proposals for regulations amending the securitization framework of EU, in response to the COVID-19 pandemic.
FCA is consulting on its approach to the authorization and supervision of international firms operating in UK.
MAS published amendments to Notice 637 on the risk-based capital adequacy requirements for reporting banks incorporated in Singapore.
FCA announced that it will move firms to RegData from Gabriel in the coming months in stages, based on the reporting requirements of firms.
ISDA issued a letter to regulators to flag that it now expects the supplement to the 2006 ISDA Definitions and the Interbank Offered Rate (IBOR) Fallbacks Protocol to be effective around mid- to late-January 2021.
APRA has concluded its review of the comprehensive plans of authorized deposit-taking institutions for the assessment and management of loans with repayment deferrals.
ESAs (EBA, EIOPA, and ESMA) published the first joint report that assesses risks in the financial sector since the outbreak of the COVID-19 pandemic.
BoE and HM Treasury confirmed that the COVID Corporate Financing Facility (CCFF) will close for new purchases of commercial paper, with effect from March 23, 2021.