People
&Markets
FRONT STORY REGULATION
BoE calls time to stop Libor ‘limping on’
Progress being made, but regulator warns legacy rate switch slow
"RITAINSûlNANCIALûREGULATORûHASûSTEPPEDûUPû
ITSûWARNINGûTHATûUSERSûOFûlNANCIALûMARKETSû
WILLûNOûLONGERûBEûABLEûTOûREFERENCEû,IBORûINû
PRODUCTSûAFTERû ûANDûTHATûTHEûINTERESTû
RATEûBENCHMARKûWILLûDETERIORATEûINûACCURACYû
BEFOREûTHATûDATE
4HATûWARNINGûWASûREINFORCEDûLASTûWEEKûATûAû
"ANKûOFû%NGLANDûCONFERENCEûCALLEDûh,ASTû
/RDERSûCALLINGûTIMEûONû,IBORv ûWHICHûREJECTEDû
PRESSUREûFROMûSOMEûINûTHEûMARKETûTOûTRYûANDû
GETûANûEXTENSIONûTOûTHEûBENCHMARKSûLIFE
h$UEûTOûTHEûDEEPLYûEMBEDDEDûNATUREûOFû
,IBORûxûAûSMALLûNUMBERûOFûRESPONSESûBASEDû
THEIRûTRANSITIONûPLANNINGûONûTHEûASSUMPTIONû
THATûINCREMENTALûEXTENDEDûTRANSITIONû
ARRANGEMENTSûWOULDûMATERIALISEûFORû,IBORû
ANDûPACEDûTHEIRûPLANNINGûASSUMPTIONûANDû
ACTIONSûONûTHISûBASIS vûTHEû&INANCIALû#ONDUCTû
!UTHORITYûSAIDûINûAûPROGRESSûREPORT
!NDREWû"AILEY ûCHIEFûEXECUTIVEûOFûTHEû! û
SAIDûTHEûTIMETABLEûWASûhAMBITIOUSûANDû
AGGRESSIVEv ûBUTûTHATûWASûNECESSARYûGIVENû
THEûFRAGILEûPOSITIONûOFû,IBOR ûWITHûFEWû
TRANSACTIONSûUNDERPINNINGûTHEûMARKETûINû
SOMEûDURATIONSûASûSUBMISSIONSûHAVEûFALLEN
AGGRESSIVE TIMETABLE
"AILEYûSAIDûHEûWASûPLEASEDûWITHûPROGRESSû
SINCEûTHEû!ûlRSTûPUBLISHEDûITSûTIMETABLEûTOû
CLOSEûDOWNûSTERLINGû,IBOR ûPARTICULARLYû
REGARDINGûNEWûmOATINGûRATEûISSUANCE
h7EûAREûAHEADûOFûWHEREû)ûEXPECTEDûWEû
WOULDûBEûATûTHISûPOINT vûHEûSAID
"UTû"AILEYûSAIDûADDRESSINGûTHEûLEGACYûOFû
,IBORûISSUESûWASûAûPOTENTIALûPROBLEM ûANDû
THEREûWEREûINSTRUMENTSûWITHûMATURITIESûASû
LONGûASûûYEARSûREFERENCINGûTHEûRATE
h4HEREûAREûTOOLSûTOûHELPûMANAGEûOUTûTHEû
LEGACYû7EûWILLûHAVEûSEVERALûMOREûSESSIONSû
4HEûLEGACYûISSUEûISûTOUGHû7EûCANTûHIDEû
FROMûITû.OTHINGûISûOFFûTHEûTABLEûATûTHISûPOINTû
"UTûWEûCANTûHAVEû,IBORûLIMPINGûONûFORûAû
CENTURYvûHEûSAIDûh7EûDOûREALISEûTHEûISSUEûISû
OUTûTHEREv
NO EXTENSION
$AVEû2AMSDENûDEPUTYûGOVERNORûFORûMARKETSû
ANDûBANKINGûATûTHEû"ANKûOFû%NGLANDûWARNEDû
ATûTHEûSAMEûCONFERENCEûTHATûMOREûACTIONûISû
NEEDED
h'IVENûTHEûPERVASIVEûUSEûOFû,IBORû
HISTORICALLYûTHISûCREATESûAûFRAGILITYûATûTHEû
HEARTûOFûMARKETSûnûTHATûlNANCIALûMARKETSûAREû
RELIANTûUPONûANûUNSUSTAINABLEûPIECEûOFû
INFRASTRUCTUREvû2AMSDENûSAID
3HANKARû-UKHERJEEû5+ûlNANCIALûSERVICESû
PARTNERûATû%9ûSAIDûTHEûWARNINGSûINDICATEDû
FURTHERûEXTENSIONSûWEREûUNLIKELY
h4HEûHOPEûOFûMANYûBANKSûTHATû,IBORûWILLû
BEûEXTENDEDûPASTûûHAVEûAGAINûBEENû
DASHEDûWITHûTHEûREGULATORûCONlRMINGûITû
EXPECTSû,IBORûTOûBEûSWITCHEDûOFFûINûû
THOUGHûBANKSûAREûSTILLûLOOKINGûFORûMOREû
CLARITYûAROUNDûTERMûRATESvû-UKHERJEEûSAID
2AMSDENûSAIDûTHEREûHADûBEENûhREALûPROGRESSû
INûESTABLISHINGû3ONIAûASûTHEûSUCCESSORûTOû
STERLINGû,IBORvûONûTHEûPRIMARYûSIDE
h&ROMûAûZEROûBASEûTHISûTIMEûLASTûYEARû
3ONIA
LINKEDûmOATING
RATEûNOTEûISSUANCEûNOWû
DOMINATESûSTERLINGûmOATING
RATEûlNANCIALSû
ISSUANCEûANDûTHEREûISûCLEARûMOMENTUMû
TOWARDSûUSINGûTHEûCOMPOUNDEDû3ONIAûRATEû
ACROSSûBONDûMARKETSvûHEûSAID
h4HEûlRSTûlVEûMONTHSûOFûûHAVEûSEENûû
DIFFERENTûBANKSûSOVEREIGNSûANDûSUPRANATIONALSû
ISSUEû&2.SûREFERENCINGûCOMPOUNDEDû3ONIAû
WITHûAûTOTALûVALUEûOFûABOUTûaBNv
(EûALSOûSAIDûAûBONDûISSUERû
ûTHEû5+Sû
BIGGESTûPORTSûOPERATORû!"0û
ûWASûCURRENTLYû
HOLDINGûAûCONSENTûSOLICITATIONûPROCESSûTOû
SWITCHû,IBORûREFERENCESûTOûCOMPOUNDEDû
3ONIAûAûCRITICALûDEVELOPMENTûINûTHEûATTEMPTû
TOûSWITCHûTHEûSWATHEûOFûLEGACYûISSUESûOVERû
BEFOREû,IBORûISûSTOPPEDûAFTERû
)NûTHEû/4#ûDERIVATIVESûMARKETû3ONIAûWASû
STARTINGûTOûBEûUSEDûANDûTHEûNOTIONALûVALUEûOFû
CLEAREDû3ONIAûSWAPSûWASûONLYûSLIGHTLYûLESSûTHANû
CLEAREDû,IBORûREFERENCEDûSWAPSû2AMSDENûSAIDû
)NûOTHERûAREASûTHEREûWASûLESSûPROGRESS
h3ONIAûFUTURESûASûAûSHAREûOFûTHEûOVERALLû
MARKETûHAVEûINCREASEDûBUTûSTANDûATûONLYûAû
SMALLûPORTIONûOFûTHEûTOTALvûHEûSAIDûh7EûAREû
YETûTOûSEEûAû3ONIA
BASEDûLOANv
4HEûREGULATORSûUPDATEûSAIDûSOMEûlRMSûDIDû
NOTûHAVEûAûCLEARûUNDERSTANDINGûOFûTHEIRûCURRENTû
,IBORûEXPOSURESûESPECIALLYûWHEREûCONTRACTSû
MATUREDûAFTERûû)TûSAIDûEXPOSUREûTOû,IBORûWASû
hDEEPLYûEMBEDDEDvûNOTûJUSTûINûASSETSûANDû
LIABILITIESûBUTûALSOûINûRISKûMANAGEMENTûSYSTEMS
h)TûISûTHEREFOREûPRUDENTûFORûlRMSûTOû
UNDERTAKEûAûTHOROUGHûSTOCKTAKEûTOûIDENTIFYû
WHEREûANDûHOWû,IBORûISûRELEVANTûTOûTHEIRû
BUSINESSûANDûWHETHERûANYûRELEVANTûEXPOSUREû
TOûOTHERûINTERBANKûOFFEREDûRATESûSHOULDûBEû
CONSIDEREDvûTHEûREPORTûSAID
)TûSAIDûlRMSûMIGHTûHAVEûhTOûEXTRACTû
EXPOSUREûINFORMATIONûMANUALLYûREQUIRINGû
CONSIDERABLEûTIMEûANDûEFFORTv
Christopher Spink
Bayer’s takeover
of Monsanto
destroyed value and
shows why M&A
advisers should be
judged on the success
of deals, a professor
says
û
Wells
Fargo hires
Deutsche Bank’s
COO in the Americas,
Kate Clifford-Toomey,
just weeks before
crucial US stress test
results come out
China is
making efforts
to stimulate trading
in distressed debt to
add transparency and
try to take the luck
out of investing in the
asset class
Source: Bank of England
012345
2018
2017
SONIA swaps
ON THE RISE; SONIA SWAPS MONTHLY NOTIONAL
AVERAGE CLEARED OTC, IN £trn