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Key milestone for scrapping Libor delayed to January

Huw Jones
·2-min read
FILE PHOTO: The spread of the coronavirus disease (COVID-19) in London
FILE PHOTO: The spread of the coronavirus disease (COVID-19) in London

By Huw Jones

LONDON (Reuters) - A crucial milestone for moving contracts worth trillions of dollars from the tarnished Libor interest rate won't take place until mid-January, some months later than previously indicated, an industry body said on Wednesday, compressing an already tight timetable.

Regulators want the use of Libor or the London Interbank Offered Rate in contracts from credit cards to mortgages stopped by the end of December 2021 after banks were fined billions of dollars for trying to rig what was once dubbed the world's most important number.

New derivatives and swaps contracts are already moving to alternative overnight rates set by central banks like the Bank of England and the Federal Reserve.

The International Swaps and Derivatives Association (ISDA) is amending documentation used as a template for swaps trades globally to state what would be the alternative or "fallback" interest rate used if Libor disappeared for pricing outstanding contracts.

Edwin Schooling Latter, the UK Financial Conduct Authority's head of markets policy, told a Bank of England webinar last week that banks could sign up to the fallback from "sometime in October".

"The ISDA protocol should be published quite shortly...in days and weeks rather than months," Tushar Morzaria, chair of a financial industry working group on Libor transition, also told the webinar.

But ISDA said on Wednesday it now expects the effective date for amendments to documentation in mid-to-late January, less than a year before Libor is due to cease.

ISDA CEO Scott O'Malia said the timetable hinges on being given the nod by the U.S. Dept. of Justice and other competition regulators.

"Once we hear from the competition authorities, we'll give market participants approximately two weeks' notice of the official launch date," O'Malia said in a blog.

The delay could affect an anticipated sequence of events, including more detailed announcements on the phase-out of Libor and its variants from the FCA, and from the administrator that compiles Libor.

(Reporting by Huw Jones; Editing by Kirsten Donovan)