Synthetic USD Libor Annoucement

A short blog today to highlight the recent Financial Conduct Authority (FCA) decision on synthetic USD Libor.

As all our readers will know, USD Libor is set to end on 30-June-2023, at which point “panel banks” will stop contributing rates to ICE Benchmark Administration (IBA).

So let’s summarize the recent FCA decision:

  • The FCA requires IBA, Libor’s administrator, to continue to publish 1m, 3m, 6m USD Libor, after 30-Jun-2023, using a un-representative ‘synthetic methodology until 30 September 2024.
  • This methodology will use the CME Term SOFR Rate plus the ISDA fixed spread adjustment
  • Legacy contracts, except for cleared derivatives, will be permitted to use this new synthetic libor, the intention being to help an orderly wind-down.
  • (Recall clearing houses are converting all cleared derivatives, ETD and OTC to SOFR)
  • New contracts will be prohibited under the Benchmark regulation from using the new synthetic libor

There you have it and the full FCA annoucement is available here.

(Another point noted in here is that synthetic GBP Libor for 1m & 6m were published for the final time on 31 March 2023, while 3m will continue to 31 March 2024).

There you have it, with USD Libor ending on 30 June 2023 and a new synthetic USD Libor only for legacy contracts published till 30 September 2024.

A reference index that the British Bankers Association (BBA) started publishing in 1986, a reference index that was massively significant in the huge growth of derivatives markets, after a thirty-eight year run, is about to be consigned to history.

The only constant is change.


In the vein of all things ChatGPT, see “I asked ChatGPT to write a Clarus Blog“, I thought I would ask the following question, Why is Libor ending?

The response:

LIBOR (London Interbank Offered Rate) is ending because of the major scandal that occurred in 2012 when several banks were found to have manipulated the rate for their own financial gain. As a result, regulators began scrutinizing the calculation of LIBOR and concluded that it was based on a very small number of actual transactions and was therefore vulnerable to manipulation.

To address these concerns, regulators and industry groups have been working on a transition to alternative benchmarks that are more reliable and transparent. One such benchmark is the Secured Overnight Financing Rate (SOFR), which is based on a much larger volume of actual transactions and is therefore considered to be more reliable.

The transition from LIBOR to alternative benchmarks is a complex process that involves changes to contracts and financial instruments that reference LIBOR. Regulators and industry groups have been working together to ensure a smooth transition, and the end of LIBOR is expected to be complete by the end of 2021.

Pretty good, except as ChatGPT is trained on data as of 2021, it does not know about the new transition dates.

Depending on which source you believe, it takes many months to a year to train, check and release a Large Language Model (LLM). GPT-4 and ChatGPT Plus which was recently released on 14 March 2023, is also trained as of September 2021.

So until LLMs can be updated quickly, we will still need to rely on Google Search and finding relevant articles such as those on the Clarus Blog.

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