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    ESMA Group Issues Recommendations on RFR Switch in Interdealer Market

    July 26, 2021

    The European Securities and Markets Authority (ESMA) published recommendations from the Working Group on Euro Risk-Free Rates (RFR) on the switch to risk-free rates in the interdealer market. The recommendations concern two initiatives: the first initiative concerns recommendation for interdealer brokers to switch from EONIA to €STR at a common date (€STR First Initiative); the second concerns the support for the initiative coordinated between international risk-free rate Working Groups on a common start date to switch the quoting convention for cross-currency swaps involving non-Euro currencies (Cross-Currency Swaps Initiative).

    Below are the statements approved by the Working Group for each initiative:

    • €STR First Initiative. The Working Group recommends as market best practice, that interdealer brokers change Risk Free Rate swap trading conventions from EONIA to €STR from Monday October 18, in line with the central counterparty (CCP) transition from EONIA to €STR on that weekend. For the avoidance of doubt, this only relates to the trading of risk-free rate based swaps and does not apply to EURIBOR based swap trading. While the Working Group recognizes that from a risk management perspective, the spread between EONIA and €STR has already been fixed, it sees benefits for market participants to move their practices ahead of the year end cessation deadline and in line with the CCP transition date.
    • Cross-Currency Swaps Initiative. The Working Group fully supports the recommendation of a common start date of September 21 for a switch of quoting conventions in the interdealer market for USD, GBP, CHF, and JPY legs of cross-currency swaps and encourages Euro Area market participants to adopt this market practice subject to supportive market conditions at the time. For cross-currency swaps with a EUR-denominated leg, the Working Group will continue to monitor the development of market liquidity and the demand from end-users.


    Related Link: Recommendations


    Keywords: International, Europe, EU, Banking, Securities, Insurance, Benchmark Reforms, LIBOR Transition, Risk Free Rates, Derivatives, Swaps, Cross Currency Swaps, ESMA

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