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    BoE Issues Updates Related to Interest Rate Benchmark Reforms

    September 29, 2021

    The Bank of England (BoE) published the final Policy Statement on the proposal to modify the scope of contracts subject to the derivatives clearing obligation, which was set out in a consultation paper published in May 2021. The May consultation paper had proposed amendments to BTS 2015/2205 to incorporate modifications related to the derivatives clearing obligation to reflect the interest rate benchmark reform. Along with the Policy Statement, BoE published a proposal (also amending BTS 2015/2205) to add Overnight Index Swaps (OIS) that reference TONA to the scope of contracts that are subject to the derivatives clearing obligation. The consultation period ends on October 27, 2021 and this obligation is expected to come into force on or shortly after December 06, 2021.

    BoE proposed to introduce a clearing obligation for OIS that reference TONA, in light of certain announcements made by the Japanese authorities and the anticipated changes in market activity as a result of these announcements. The proposed modification will act as a replacement for the contract types referencing JPY LIBOR, which will be removed from the clearing obligation on December 06, 2021. The JPY LIBOR contract types that will be removed from the clearing obligation have a minimum maturity of 28 days, which differs to the 7 days proposed for the TONA OIS contract type. BoE is proposing to align the shortest maturity for TONA contracts with that of the existing contracts in the OIS class, while the maximum maturity will remain aligned with the soon to be removed JPY LIBOR contract types. The modification proposed in this consultation paper will not have retrospective effect. The over-the-counter (OTC )derivatives contracts referencing TONA that are concluded between counterparties before December 06, 2021, or shortly after (depending on when the change comes into force), will not be subject to the clearing obligation.

    The TONA OIS contract type in the clearing obligation will cover broadly the same maturity range as the JPY LIBOR contracts it is replacing. As with the changes consulted on in the May consultation paper, the date on which the proposed modification in this consultation comes into force will coincide with the date associated with the broader risk-free rate transition. The date will coincide with the contractual conversion of JPY LIBOR contracts by a number of central counterparties. Reflecting the international nature of OTC derivatives trading and clearing, BoE has discussed its proposed approach with several national and international authorities responsible for the equivalent clearing obligations in their jurisdictions. Subject to approval from the Her Majesty's Treasury, BoE intends to make and publish the amendment to BTS 2015/2205 by the end of November 2021. BoE also expects to consult on changes to the clearing obligation for the contract types referencing USD LIBOR in 2022. 


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    Comment Due Date: October 27, 2021

    Keywords: Europe, UK, Banking, Securities, Derivatives Clearing Obligation, Interest Rate Benchmarks, Overnight Index Swaps, Benchmark Reforms, LIBOR, €STR, SONIA, OTC Derivatives, CCPs, EMIR, BTS 2015/2205, TONA, BoE

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