In November 2022, we consulted on proposals to require the continued publication of 1-, 3- and 6-month synthetic US dollar LIBOR after 30 June 2023 when the US dollar LIBOR panel is due to cease.
In line with that consultation[1], we have decided to require LIBOR’s administrator, ICE Benchmark Administration Limited (IBA), to continue the publication of the 1-, 3- and 6-month US dollar LIBOR settings for a short period after 30 June 2023, using an unrepresentative ‘synthetic’ methodology (‘synthetic US dollar LIBOR’).
We will publish a detailed Feedback Statement later in Q2 2023, responding to the feedback we received to our consultation.
How long synthetic US dollar LIBOR will be published for
We intend that publication[2] of the 1-, 3- and 6-month synthetic US dollar LIBOR settings will cease on 30 September 2024. We will review our decision, in line with the requirements of the Benchmarks Regulation. However, unless unforeseen and material events were to happen, we expect to follow the direction and timeline we have indicated. We consider providing early notice of this is helpful for market participants.
Firms must therefore continue to actively transition contracts that reference US dollar LIBOR. In line with our previous Dear CEO letter[3], we continue to expect firms to take action and deliver demonstrable progress. Synthetic LIBOR is only a temporary bridge, and synthetic settings will not continue simply for the convenience of those who could have transitioned their contracts but have not done so.
How synthetic US dollar LIBOR will be calculated
We have decided[4] to require IBA to calculate the 1-, 3- and 6-month synthetic US dollar LIBOR settings using the relevant CME Term SOFR Reference Rate plus the respective ISDA fixed spread adjustment.
Legacy use of synthetic US dollar LIBOR
We have decided[5] to permit the use of the 1-, 3- and 6-month synthetic US dollar LIBOR settings in all legacy contracts except cleared derivatives.
New use of synthetic US dollar LIBOR will not be permitted
On 1 January 2022, we imposed[6] restrictions on new use of US dollar LIBOR, with limited exemptions. From 1 July 2023, after the US dollar LIBOR panel ends, all new use of synthetic US dollar LIBOR will be prohibited under the Benchmarks Regulation. This will override the exemptions to the prohibition on new use that we imposed[6], and consequently these exemptions will cease when the US dollar LIBOR panel ends. The synthetic settings are intended for use in legacy contracts only, to help ensure an orderly wind-down of LIBOR.
Synthetic sterling LIBOR
Since 1 January 2022, we have required IBA to publish the 1-, 3- and 6-month sterling LIBOR settings using a ‘synthetic’ methodology.
The 1- and 6-month synthetic sterling LIBOR settings were published for the final time on 31 March 2023. These settings have now ceased permanently.
We have been clear that the 3-month synthetic sterling LIBOR setting is expected to cease at the end of March 2024. Firms must continue their active transition efforts ahead of this date.
Notes to editors
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The overnight and 12-month US dollar LIBOR settings will cease permanently after publication on 30 June 2023.
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The 3 US dollar LIBOR settings that will continue to be published under a synthetic methodology after 30 June 2023 will become Article 23A benchmarks[7] (under the Benchmarks Regulation) on 1 July 2023.
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The FCA has published draft Notices under Articles 23C[5] and 23D[4] of the Benchmarks Regulation confirming its decisions on which legacy contracts can use synthetic US dollar LIBOR and how it will be calculated. The FCA will publish final versions of these notices on 1 July 2023.
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The 3-month synthetic sterling LIBOR setting is expected to cease on the last business day of March 2024. Due to the Easter bank holiday, this will be Thursday 28 March 2024.