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
ESRB Paper Shows News as Information Source on Distressed Firm LinksRelated Articles
FINMA Approves Merger of Credit Suisse and UBS
The Swiss Financial Market Supervisory Authority (FINMA) has approved the takeover of Credit Suisse by UBS.
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.
APRA Assesses Macro-Prudential Policy Settings, Issues Other Updates
The Australian Prudential Regulation Authority (APRA) published an information paper that assesses its macro-prudential policy settings aimed at promoting stability at a systemic level.
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.
MFSA Sets Out Supervisory Priorities, Issues Reporting Updates
The Malta Financial Services Authority (MFSA) outlined its supervisory priorities for 2023
German Regulators Issue Multiple Reporting Updates for Banks
Deutsche Bundesbank published the nationally deactivated validation rules for the German Commercial Code (HGB) users on the taxonomy 3.2, which became valid from December 31, 2022
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.
