ECB Report on Transfer of Liquidity from EONIA Products to €STR
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
Related Links
Keywords: Europe, EU, Banking, Securities, EONIA, €STR, Risk Free Rates, CCPs, Interest Rate Benchmarks, Derivatives, ECB
Previous Article
ESMA Publishes Report on Trends, Risks, and Vulnerabilities in EUNext Article
ESRB Publishes Report on Systemic CyberattacksRelated Articles
EC Issues Regulation on Adjustments to K-Factor Coefficients Under IFR
The European Commission (EC) published a report summarizing responses to the targeted consultation on the supervisory convergence and the single rulebook in the European Union (EU).
OSFI Issues Results of Pilot on Climate Risk Scenario Analysis
The Office of the Superintendent of Financial Institutions (OSFI) published an update on the discussion paper that intended to engage federally regulated financial institutions and other interested stakeholders in a dialog with OSFI, to proactively enhance and align assurance expectations over key regulatory returns.
ECB Issues Opinions on Green Bonds Standard and CRR Proposals
The European Central Bank (ECB) published its opinion on a proposal for a regulation on European green bonds, following a request from the European Parliament.
ESRB Explores Policy Response to Risks Arising from Digitalization
The Advisory Scientific Committee (ASC) of the European Systemic Risk Board (ESRB) published a report that explores the expected impact of digitalization on provision of financial and banking services, and proposes policy measures to address the risks stemming from digitalization.
EU Authorities Address COVID-19 Reporting, MCD, and PSD2 Issues
The European Banking Authority (EBA) announced that the guidelines on the reporting and disclosure of exposures subject to measures COVID-relief measures shall continue to apply until further notice.
FI Publishes Multiple Regulatory and Reporting Updates
The Swedish Financial Supervisory Authority (FI) announced that the capital adequacy reporting as at December 31, 2021 must be done by February 11, 2022.
BSP Tackles Aspects of Lending and Islamic, Open & Sustainable Finance
The Central Bank of the Philippines (BSP) issued communications covering developments related to online lending platforms, open finance framework and roadmap, and on the expected regulations in the area sustainable finance.
US Agencies Issue Regulatory Updates, FDIC Launches Tech Sprint
The Board of Governors of the Federal Reserve System (FED) published the final rule that amends Regulation I to reduce the quarterly reporting burden for member banks by automating the application process for adjusting their subscriptions to the Federal Reserve Bank capital stock, except in the context of mergers.
EBA Issues Guide on Bank Resolvability, Consults on Transferability
The European Banking Authority (EBA) published its assessment of risks through the quarterly Risk Dashboard and the results of the Autumn edition of the Risk Assessment Questionnaire (RAQ).
MFSA Publishes CRD5 Updates and Supervisory Priorities for 2022
The Malta Financial Services Authority (MFSA) updated the guidelines on supervisory reporting requirements under the reporting framework 3.0.
