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October 13, 2020

LIBOR

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October 13, 2020

LIBOR


Press Release

LIBOR

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October 13, 2020

 
LIBOR
 

Central banks have identified London Inter-Bank Offered Rates (LIBOR) as systemically unsound due to the substantial decrease in short-term wholesale interbank funding (which LIBOR represents). In response to these concerns, central bank committees across the globe have selected alternative overnight “risk-free” rates (RFRs) that are transaction-based rates to replace LIBOR in their respective currency.

Following December 31, 2021, all settings of GBP and JPY LIBOR ceased to be published, except for the 1, 3 and 6 month settings for which a synthetic LIBOR rate is being published (but which is unrepresentative and solely for use in legacy transactions). Additionally, all settings of CHF and EUR LIBOR, and the 1 week and 2 month USD LIBOR settings,
ceased to be published.

The remaining settings of USD LIBOR (namely, 1, 3, 6 and 12 month USD LIBOR) will cease to be published immediately after the June 30, 2023 publication, but are already restricted from use in new transactions under U.S. and U.K. regulation (with limited exceptions).

 

Organizational Readiness

A global working group has been established to centralize transition efforts across MSIM. The group meets periodically to review its transition strategy, internal and external engagement, and important industry developments. MSIM, in partnership with other divisions of Morgan Stanley, is engaged with global regulators, industry working groups (e.g., the Alternative Reference Rate Committee) and central bank committees.

MSIM regularly monitors its IBOR-based exposure across portfolios we manage. We are taking steps to reduce investment in securities and other instruments that reference an IBOR maturing past its cessation date, where possible. Additionally, MSIM is participating in risk-free rate markets such as the U.S. Secured Overnight Financing Rate (SOFR) and U.K. Sterling Overnight Interbank Average (SONIA), as liquidity in derivatives and cash products referencing these rates grow.

Client and Vendor Contracts

MSIM has identified impacted client and third-party contracts that reference IBOR. We are reaching out to clients and third-parties to discuss plans to transition to the new reference rates for existing and new transactions, with the goal of transitioning or remediating documentation prior to any cessation date.

LIBOR-Linked Securities (e.g., Bonds, Loans, Derivatives)

Investment securities will have varying fallback measures. In more recent bond issuances, issuers are including the widely-accepted Alternative Reference Rates Committee (ARRC) fallback language that would apply an adjusted risk-free rate to contracts and/or products in the event of a permanent LIBOR cessation. For legacy investment securities that do not have permanent LIBOR cessation fallback language, legislative solutions and other industry-wide remedies (e.g., FCA’s Synthetic LIBOR, New York Bill) are expected to facilitate the transition of qualifying legacy positions. MSIM continues to monitor such developments and adjust its transition plans accordingly.

For derivatives, MSIM has adhered to the ISDA IBOR Fallbacks Protocol and Supplement, which amends the ISDA 2006 Definitions to incorporate robust fallbacks for new derivative trades, and enables market participants to incorporate the revisions into legacy derivatives with adhering counterparties. The protocol came into effect on January 25, 2021.

Systems internal to Morgan Stanley and across the market have been updated to accommodate the switch from IBOR to risk-free rates. MSIM has engaged its vendors to confirm their readiness and will continue to monitor through the transition. Where MSIM technology and infrastructure require change, steps have been taken to ensure the capability to support the risk-free rates and fallbacks when needed.

 

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For further details or questions, please contact your regular Morgan Stanley client service representative

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This is not intended to be a comprehensive summary of the IBOR transition, but it captures recent developments affecting Morgan Stanley clients.

*The websites are provided for informational purposes only. Morgan Stanley has not reviewed any of the content supplied, and does not guarantee any claims or assume any responsibility for the content provided by the sites

 
 

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MIDDLE EAST

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