ECB Recommendations Address Impact of Transition from EONIA to €STR
ECB published report on a set of recommendations addressing the impact of transition from the euro overnight index average (EONIA) to the euro short-term rate (€STR). The recommendations take an operational and valuation perspective, taking into account EONIA’s wide use as a reference rate and as a collateral remuneration and cash flow discounting rate. The report, by the private sector working group on euro risk-free rates, analyzes various financial products and processes affected by the transition, covering secured and unsecured cash products, securities, investment funds, derivatives, and models referencing EONIA.
The report urges market participants to prepare for the change in the publication time of EONIA from day T at 19:00 CET to the next business day T+1 at 9:15 CET that will follow the change in EONIA’s methodology as of October 02, 2019 (representing transactions executed on October 01, 2019). Regarding the change in publication time of EIONIA resulting from the planned recalibration of EONIA as the €STR, plus a fixed spread of 8.5 basis points as at October 02, 2019, the working group encourages market participants, among other things, to:
- Screen the inventory of affected transactions and system environments to assess the modifications needed to cope with the change in the publication time of EONIA and prepare relevant teams for enhanced oversight during the cut-over period
- Design a communication strategy geared toward internal and external stakeholders (clients in particular) to ensure awareness of impending changes
- Consider adjusting the default settlement time (that is, the lag between the last fixing date and the settlement date) in certain cases
The report also urges market participants to prepare for the discontinuation of EONIA on January 03, 2022. In this context, the working group recommends, among other things, that:
- Market participants actively transition floating rate options (FROs) referencing EONIA to €STR FROs before the end of 2021
- Central counterparty (CCPs) clearing houses align their discounting switch dates as much as possible to transition from an EONIA discounting regime to a €STR discounting regime and set the discounting switch date as early as possible, preferably toward the end of the second quarter of 2020
- Market participants introduce all necessary modifications to be able to issue, buy, trade, and manage new securities indexed to the €STR and avoid issuing new securities indexed to EONIA with maturities going beyond the transition period
Related Links
Keywords: Europe, EU, Banking, Securities, EONIA, €STR, Risk-Free Rates, Recommendations, CCPs, Interest Rate Benchmarks, ECB
Previous Article
PRA Publishes Business Plan for 2019-20Related Articles
BOE Sets Out Its Thinking on Regulatory Capital and Climate Risks
The Bank of England (BOE) published a working paper that aims to understand the climate-related disclosures of UK financial institutions.
OSFI Finalizes on Climate Risk Guideline, Issues Other Updates
The Office of the Superintendent of Financial Institutions (OSFI) is seeking comments, until May 31, 2023, on the draft guideline on culture and behavior risk, with final guideline expected by the end of 2023.
BIS Paper Examines Impact of Greenhouse Gas Emissions on Lending
BIS issued a paper that investigates the effect of the greenhouse gas, or GHG, emissions of firms on bank loans using bank–firm matched data of Japanese listed firms from 2006 to 2018.
HMT Mulls Alignment of Ring-Fencing and Resolution Regimes for Banks
The HM Treasury (HMT) is seeking evidence, until May 07, 2023, on practicalities of aligning the ring-fencing and the banking resolution regimes for banks.
BCBS Report Examines Impact of Basel III Framework for Banks
The Basel Committee on Banking Supervision (BCBS) published results of the Basel III monitoring exercise based on the June 30, 2022 data.
PRA Consults on Prudential Rules for "Simpler-Regime" Firms
Among the recent regulatory updates from UK authorities, a key development is the first-phase consultation, from the Prudential Regulation Authority (PRA), on simplifications to the prudential framework that would apply to the simpler-regime firms.
DNB Publishes Multiple Reporting Updates for Banks
DNB, the central bank of Netherlands, updated the list of additional reporting requests and published additional data quality checks and XBRL-Formula linkbase documents for the first quarter of 2023.
NBB Sets Out Climate Risk Expectations, Issues Reporting Updates
The National Bank of Belgium (NBB) published a communication on climate-related and environmental risks, issued an update on XBRL reporting
EBA Updates Address Securitization Standards and DGS Guidelines
The European Banking Authority (EBA) published the final draft of the regulatory technical standards that set out conditions for assessment of homogeneity of the underlying exposures in simple, transparent, and standardized (STS) securitizations.
FSB Publishes Letter to G20, Sets Out Work Priorities for 2023
The Financial Stability Board (FSB) published a letter intended for the G20 Finance Ministers and Central Bank Governors, highlighting the work that FSB will take forward under the Indian G20 Presidency in 2023