ICE Benchmark Administration Provides Update Regarding the Cessation of Sterling LIBOR®

Rhea-AI Summary

Intercontinental Exchange, Inc. (ICE) announces updates on the cessation of sterling LIBOR by ICE Benchmark Administration Limited (IBA) as per the U.K. Financial Conduct Authority (FCA) mandate. Synthetic LIBOR settings will be published until March 28, 2024, for sterling and until September 30, 2024, for U.S. dollar, after which they will cease. Users are advised to seek legal and regulatory guidance for the impact on financial contracts.

Insights

Financial Analyst

The cessation of sterling LIBOR and its transition to a 'synthetic' methodology is a pivotal development for financial markets globally. The move by the FCA to extend the publication of certain LIBOR rates using a synthetic methodology provides a temporary solution for legacy contracts that have not transitioned to alternative reference rates. However, this extension is merely a stopgap measure, as the FCA has no intention to continue publication beyond the specified dates. Market participants must therefore accelerate their transition plans to alternative rates such as SONIA for sterling and SOFR for USD.

From a financial analysis perspective, this transition period offers stakeholders a buffer to mitigate legal and operational risks associated with the discontinuation of LIBOR. It is imperative for financial institutions to reassess their exposure to LIBOR-linked instruments and to understand the implications on valuation, hedging strategies and risk management. The change in methodology to a non-representative 'synthetic' rate could lead to divergences from the previous market-based LIBOR, potentially impacting the financial performance of instruments still tied to it.

Investors should monitor the developments closely, as the cessation of LIBOR could introduce volatility in markets and influence asset valuations. The transition's success will largely depend on the collective efforts of market participants to adopt the new benchmark rates and to amend existing contracts, a process that requires careful navigation to avoid financial disruptions.

Legal Expert

From a legal standpoint, the transition from LIBOR to 'synthetic' LIBOR and eventually to alternative benchmark rates is fraught with complexity. The U.K. BMR's prohibition on the use of 'synthetic' LIBOR by U.K. supervised entities, except in legacy contracts as permitted by the FCA, necessitates a thorough review of contractual language in financial instruments. Legal experts will be instrumental in guiding entities through the intricacies of this transition, ensuring compliance with the U.K. BMR and mitigating the risks of contractual disputes.

It is crucial for parties involved in LIBOR-linked contracts to seek legal and regulatory advice to understand the full impact of the cessation on their obligations and rights. This includes interpreting 'fallback' provisions and assessing the enforceability of contracts post-LIBOR. The legal implications extend beyond the U.K., as LIBOR is a global benchmark and parties must navigate the regulatory landscape in all relevant jurisdictions.

Furthermore, the synthetic LIBOR's unrepresentative nature raises questions about its legal and economic equivalence to the original LIBOR. This could lead to challenges in contract performance and potential litigation, particularly for contracts lacking clear fallback language. Legal professionals will play a key role in dispute resolution and in the drafting of new contracts that reference alternative rates.

Market Research Analyst

The extension of 'synthetic' LIBOR publication has significant implications for the financial services industry, which has been preparing for the transition to alternative benchmarks. Market research analysts are evaluating the readiness of market participants to adopt new reference rates and the potential impact on financial products and services. The continued reliance on 'synthetic' LIBOR, even as a temporary measure, indicates that some market segments may not be fully prepared for the transition, highlighting a need for increased education and support.

An analysis of past transitions from one standard to another reveals that early adopters of new benchmarks can gain a competitive advantage by demonstrating adaptability and stability to their clients. Conversely, late adopters may face increased operational and reputational risks. The market's response to the FCA's decision will be a key indicator of the industry's resilience and ability to manage significant structural changes.

Additionally, market research analysts are exploring how the cessation of LIBOR affects consumer and corporate borrowing, as well as the broader implications for financial stability. The transition to alternative rates may lead to changes in lending practices and borrowing costs. Understanding these dynamics is essential for stakeholders to make informed decisions and to adapt their strategies in a post-LIBOR financial landscape.

LONDON--(BUSINESS WIRE)-- Intercontinental Exchange, Inc. (NYSE:ICE), a leading global provider of technology and data, today announced that ICE Benchmark Administration Limited (IBA), the authorized and regulated administrator of LIBOR^®, has provided an update regarding the cessation of sterling LIBOR.

In line with feedback from its June 2022 consultation and previous statements, the U.K. Financial Conduct Authority (FCA) has used its powers under the U.K. Benchmarks Regulation (U.K. BMR) to require IBA to publish the 3-Month sterling LIBOR setting using an unrepresentative “synthetic” methodology until March 28, 2024. The FCA has stated that it has no intention to require publication beyond then and that this setting will cease after publication on that date.

IBA is also currently required by the FCA to continue to publish the 1-, 3- and 6-Month “synthetic” U.S. dollar LIBOR settings. The FCA has stated that it intends to require IBA to publish these settings until September 30, 2024, but not beyond that date, when it expects publication to cease.

All other LIBOR settings have ceased to be published. “Synthetic” LIBOR settings that are required to be published under a “synthetic” methodology are not representative of the underlying market or economic reality the setting was intended to measure prior to such requirement.

The use of “synthetic” LIBOR settings by U.K. supervised entities is prohibited under the U.K. BMR, subject to the FCA permitting use by U.K. supervised entities in legacy contracts other than cleared derivatives.

Users of LIBOR settings should take appropriate legal and regulatory advice in all relevant jurisdictions to ensure they understand and are prepared for the impact of the cessation or unrepresentativeness of any LIBOR settings on them and their counterparties under any applicable legislation or regulation, financial contracts, financial instruments and other arrangements.

Please see IBA’s LIBOR webpage and the FCA’s LIBOR transition webpage for further information.

About ICE Benchmark Administration

ICE Benchmark Administration Limited is authorized and regulated by the Financial Conduct Authority for the regulated activity of administering a benchmark and is authorized as a benchmark administrator under the U.K. Benchmarks Regulation. LIBOR and ICE Benchmark Administration are registered trademarks of ICE Benchmark Administration Limited and/or its affiliates.

About Intercontinental Exchange

Intercontinental Exchange, Inc. (NYSE: ICE) is a Fortune 500 company that designs, builds and operates digital networks that connect people to opportunity. We provide financial technology and data services across major asset classes helping our customers access mission-critical workflow tools that increase transparency and efficiency. ICE’s futures, equity, and options exchanges – including the New York Stock Exchange – and clearing houses help people invest, raise capital and manage risk. We offer some of the world’s largest markets to trade and clear energy and environmental products. Our fixed income, data services and execution capabilities provide information, analytics and platforms that help our customers streamline processes and capitalize on opportunities. At ICE Mortgage Technology, we are transforming U.S. housing finance, from initial consumer engagement through loan production, closing, registration and the long-term servicing relationship. Together, ICE transforms, streamlines and automates industries to connect our customers to opportunity.

Trademarks of ICE and/or its affiliates include Intercontinental Exchange, ICE, ICE block design, NYSE and New York Stock Exchange. Information regarding additional trademarks and intellectual property rights of Intercontinental Exchange, Inc. and/or its affiliates is located here. Key Information Documents for certain products covered by the EU Packaged Retail and Insurance-based Investment Products Regulation can be accessed on the relevant exchange website under the heading “Key Information Documents (KIDS).”

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 – Statements in this press release regarding ICE's business that are not historical facts are "forward-looking statements" that involve risks and uncertainties. For a discussion of additional risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see ICE's Securities and Exchange Commission (SEC) filings, including, but not limited to, the risk factors in ICE's Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC on February 8, 2024.

Category: EXCHANGES

ICE- CORP

Source: Intercontinental Exchange

View source version on businesswire.com: https://www.businesswire.com/news/home/20240229583196/en/

ICE Media Contact:

Jess Tatham

jess.tatham@ice.com

+44 7377 947136

ICE Investor Contact:

Katia Gonzalez

katia.gonzalez@ice.com

(678) 981-3882

Source: Intercontinental Exchange

FAQ

What update did Intercontinental Exchange, Inc. (ICE) provide regarding sterling LIBOR?

ICE announced that ICE Benchmark Administration Limited (IBA) will publish synthetic sterling LIBOR settings until March 28, 2024, as mandated by the U.K. Financial Conduct Authority (FCA).

Until when will the synthetic sterling LIBOR settings be published?

The synthetic sterling LIBOR settings will be published until March 28, 2024, as per the FCA mandate.

What is the timeline for the cessation of synthetic U.S. dollar LIBOR settings?

The synthetic U.S. dollar LIBOR settings will be published until September 30, 2024, as required by the FCA.

What is the impact of using 'synthetic' LIBOR settings as per the U.K. Benchmarks Regulation (U.K. BMR)?

The 'synthetic' LIBOR settings are not representative of the underlying market or economic reality, and their use is prohibited under the U.K. BMR for U.K. supervised entities.

Where can users find further information on the LIBOR transition?

Users can refer to IBA's LIBOR webpage and the FCA's LIBOR transition webpage for additional details.