EU BMR and rate transitions

EU BMR is in forced since 2018 (with some transition period to 2020/2022). Different rate transitions are expected in the coming years: new fallback definitions, CCP discounting big bang and GBP FRN conversions.

For each of those transitions I have questions about the compliance of the proposed solution with EU Benchmark Regulation. I have not received or seen clear indications, e.g. an explicit message from regulators, about the compliance. I have asked those questions in different context, including directly to the regulators in some cases, but have not receive answers.

I post the question here in the hope to receive answers. I will add the answers if and when I receive them.

1) Fallback language

In the proposed ISDA new definition, a spread based on the historical data computed on the announcement date using 5 year median is used. Are the full 5 years of historical data EU BMR compliant? LIBOR is compliant since 2018, SOFR has been published since April 2018, SONIA has been reformed in April 2018. Are the data for those now compliant benchmarks for dates before their compliance date compliant? Are the pre-SOFR data compliant?

2) CCP discounting big bang

The CCPs planned to have a big bang transition for the discounting in EUR and USD. The big bang will result in amount payable based on the CCP curves. The computation of those amount payable are clearly a use of benchmark in the sense of Articles 3, 1 (3) and 3, 1 (7) of the regulation. CCP are exempt from EU BMR compliance for benchmark used for risk management and settlement purposes (Article 2, 2(c)). But the cash compensation is neither of those and is explicitly an amount payable (cash adjustment that is equal and opposite to the resultant net present value). Do the curves used for cash compensation computation need to be EU BMR compliant?

3) FRN transition

In recent example of bond (FRN) conversion from GBP-LIBOR to SONIA, the bondholder accepted transition is often done based on LIBOR/OIS swap basis (at LCH). Those spreads are used to set the coupon and thus the bond's amounts payable. Are the rates of those basis swaps under the EU BMR? Are they EU BMR compliant? If not who is responsible for the non-compliance: the issuer, the arranger of the conversion or the bondholders (including those that have not voted for the conversion)?


If only you knew how many question marks are in Marc's head, you would not ask Marc questions but provide him answers!