ISDA, the Global Financial Markets Association, FIA and the Emerging Markets Traders Association (collectively, the "Associations") requested that the European Union ("EU") extend the transition period for critical and non-critical benchmarks under EU Regulation for at least two years. The Associations' statement follows a request by the Working Group on Euro Risk-Free Rates to extend the transition period for critical benchmarks.
The Associations claim that the prohibition on the use of a benchmark will have a substantial impact similar to that of the cessation of a widely used interbank offered rate ("IBOR"). They argue that if adequate time is not permitted for safeguards to be put into place, the "severe effects brought about by such prohibition" would impact the EU and global institutions. Further, the Associations contend that an extension would allow time for trades that currently reference the Euro Overnight Index Average ("EONIA") and possibly the Euro Interbank Offered Rate ("EURIBOR") (both designated as "critical benchmarks" under the EU Benchmarks Regulation) to expire, and for their exposures to be replaced by a reference to the Euro short-term rate ("ESTER").
Extending the transition period for non-critical benchmarks, the Associations said, will, among other things, give more time to the European Commission to complete equivalence determinations and for jurisdictions to develop appropriate regulatory frameworks.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.