19 Oct 2021

Eurex Clearing

IBOR reform moves forward: legacy transactions successfully converted to €STR

The Interbank Offered Rate (IBOR) reform has taken another big step forward. Over the weekend, in a coordinated action, clearing houses converted their legacy transactions referenced to EONIA to the new risk-free rate €STR.

Eurex reported that its clearing house had converted EONIA trades worth EUR 364 billion notional to €STR-flat over the weekend. The 8.5 basis points spread between the two was compensated by cash settlement on Tuesday morning.

A total of approximately 2,700 transactions were converted. 59 clearing members and clients were affected by the conversion, with gross settlement payments being made on Tuesday following conversion weekend. This marks, for now, the final step of one of the largest rates market overhauls in Europe following years of preparation by industry working groups.

“Not only does this mark a major milestone for the cleared European rates market transition following the discounting switch in 2020, it also demonstrates the key role CCPs play in such efforts,” stated Andreas Franke, Head of Risk Methodology OTC at Deutsche Börse.

IBOR reform is the biggest change in the capital markets since the introduction of the euro two decades ago. It has been ten years since the global regulatory community started to initiate the reform of the Interbank Offered Rates. Market developments had called into question the long-term sustainability of these critical benchmarks and the aim is now to rebuild confidence.

The transition of CHF, GBP and JPY LIBOR references to their respective risk-free rates is planned for December 2021, shortly before their fallback provisions are triggered immediately after December 31, 2021.