March 14, 2019

ECB announced that it will start publishing the euro short-term rate (€STR) as of October 02, 2019, reflecting the trading activity of October 01, 2019. Additionally, private sector working group on euro risk-free rates endorsed recommendations to market participants regarding the transition from the euro overnight index average (EONIA) to the €STR and the calculation of a €STR-based term structure.

Among other things, the working group recommended that market participants gradually replace EONIA with the €STR for all products and contracts, making the €STR their standard reference rate and making certain adjustments to their IT systems. The working group recommended that EONIA’s administrator, the European Money Market Institute (EMMI), modify the current EONIA methodology to become the €STR plus a spread for a limited period of time (in accordance with FSB recommendations and IOSCO Principles for Financial Benchmarks) to further anchor EONIA’s methodology in transactions, to give market participants sufficient time to transition to the €STR. EMMI is also requested to engage with the relevant authorities to ensure that EONIA, under its evolved methodology, complies with the EU Benchmarks Regulation. The working group also recommended a methodology for calculating that spread. 

ECB is supporting private-sector efforts in the transition away from EONIA and will provide the computation of a one-off spread between the €STR and EONIA. The spread will be calculated by ECB according to the methodology recommended by the working group. The resulting spread will be communicated on the day on which the change in the methodology of EONIA is announced.

Finally, the working group recommended a methodology for calculating a forward-looking term structure based on €STR derivatives markets that could be used as a fallback in EURIBOR-linked contracts. The working group will now further analyze both the backward- and forward-looking approaches as potential fallbacks for EURIBOR, acknowledging the work being done in other currency areas as well as by the International Swaps and Derivatives Association (ISDA), which has announced the launch of a consultation on determining a fallback for EURIBOR-linked derivatives contracts following the start of the publication of the €STR.

 

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Keywords: Europe, EU, Banking, Securities, EONIA, €STR, Recommendations, EURIBOR, Benchmark Regulation, ECB

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