Proposed changes to the calculation methodology for EURIBOR will result in a move from T+2 to T+1 but it’s presently unclear how the various markets impacted are going to transition....
The European Money Markets Institute (EMMI) has recently received a licence for the administration of EURIBOR from the Belgian FSMA (its regulator) and has published its EURIBOR benchmark statement setting out how the benchmark will be calculated and published going forward. Read more detail here.
EMMI is now in the process of transitioning the panel banks to the new EURIBOR hybrid methodology in a phased manner (expected to conclude in Q4 2019).
The change to the EURIBOR hybrid methodology would involve a move in the quotation day for EURIBOR from T+2 to T+1 – a point that seems to have been widely overlooked through the consultation process but which is now resulting in questions being raised about how this will work in practice, particularly across different products and markets.
For many corporates, the issue is how the loans and derivatives markets will respond.
For example, current ISDA 2006 definitions refer to the fixing on T+2; in the loan markets, the LMA documentation is drafted to provide flexibility for a market practice override so there is a possibility that markets will not move in sync.
Corporates need to be aware of the potential impact of changes in one market not being reflected in another with the resultant loss of economic hedge effectiveness.
If you have any comments or thoughts that you’d like the ACT to share, please email technical@treasures.org.
