Welcome to KPMG’s second issue of our monthly LIBOR newsletter in which we provide updates on LIBOR and other benchmark interest rate developments that directly impact banks and consider the potential implications of the related regulatory requirements.

Regulatory Updates

1. HKMA Deputy Chief Executive speaks on benchmark reform in Hong Kong

Mr. Eddie Yue, Deputy Chief Executive of the Hong Kong Monetary Authority, delivered a speech at the International Swaps and Derivatives Association (ISDA) 34th Annual General Meeting which includes the topic of benchmark reforms in Hong Kong. Mr. Yue mentioned that ISDA is taking a leadership role on two important implementation issues: how to adjust new overnight reference rates for longer tenors and how to ensure credit risk premiums are reflected.

10 April 2019 HKMA


2. Federal Reserve Governor urges U.S. financial industry to accelerate Libor transition

Mr. Randal Quarles, Federal Reserve Governor and Chair of the Financial Stability Board (FSB), urged the U.S. financial industry to accelerate efforts to move away from the “scandal-plagued” LIBOR reference interest rate during the FSB Roundtable in Washington on 10 April 2019. Mr. Quarles also noted that the Federal Reserve will include the transition away from LIBOR as part of its regular monitoring of large firms.

10 April 2019 Federal Reserve Board


3. CFTC Chairman gives remarks at FSB meeting on LIBOR reform

Mr. J. Christopher Giancarlo, chairman of the Commodity Futures Trading Commission (CFTC) joined the FSB Roundtable held on 11 April 2019 and highlighted the need for continued progress to reform major interest rate benchmarks. In particular, he noted that the CFTC expects markets for SOFR futures and swaps and related debt markets will hit critical levels where liquidity begets liquidity in the next 12 months. He also highlighted the work done by ISDA on new fallback language and triggers and encouraged market participants to adopt the new language.

11 April 2019 CFTC

Industry Update

1. TMA consults on HONIA, Hong Kong’s alternative reference rate for HIBOR

On 1 April 2019, the Treasury Markets Association (TMA) started a one-month industry stakeholders consultation on issues relating to HKD Overnight Index Average (HONIA), the alternative reference rate for Hong Kong Interbank Offered Rate (HIBOR). To enhance its robustness and representativeness, the TMA is proposing technical refinements to HONIA in the areas of: (i) data source, (ii) reporting window, and (iii) publication time.

1 April 2019 TMA


2. ISDA holds its 34th Annual General Meeting in Hong Kong

ISDA held its 34th Annual General Meeting in Hong Kong on 9 – 11 April 2019, including a symposium covering benchmark reform. Market participants and regulators discussed a wide range of issues including development of products based on new risk-free rates, challenges facing the trading of Secured Overnight Financing Rate (SOFR) swaps, as well as the development of local platform trading mandates in Hong Kong.

11 April 2019 ISDA


3. ARRC releases a User’s Guide to SOFR

The Alternative Reference Rates Committee (ARRC) released a white paper on 22 April 2019 to explain how market participants can use SOFR, its recommended alternative to USD LIBOR in cash products. The paper builds on the ARRC’s work developing the Paced Transition Plan, which outlines the steps for an effective shift to SOFR. It also explains the interaction between SOFR and the type of forward-looking term rates that the ARRC has set a goal of seeing produced once SOFR derivatives markets develop sufficient depth.

22 April 2019 ARRC


4. ARRC releases recommended fallback language for floating rate notes and syndicated loans

The ARRC released recommended contractual fallback language for USD LIBOR denominated floating rate notes and syndicated notes. Aligning fallback provisions across different products enables similar operations in event that LIBOR is no longer usable. However, the ARRC reminds institutions that financial products differ in critical ways so the recommended fallback language is designed for reference only.

25 April 2019 ARRC

KPMG Publications

1. Client alert – TMA consultation on HONIA

Following the TMA’s consultation on issues relating to HONIA, KPMG explains the proposed technical refinements to HONIA and explores the future path of benchmarks in the Hong Kong market.

9 April 2019 KPMG

Contact Us

Simon Topping
Regulatory Advisory
KPMG China
Tom Jenkins
Partner, Head of Financial
Risk Management
KPMG China
Michael Monteforte
Financial Risk Management
KPMG China
Marie Gervacio
Partner, Financial Risk Management
KPMG China
Edwin Hui
IT Advisory
KPMG China
Desmond Yu
Associate Director,
Financial Risk Management
KPMG China