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The secured overnight financing rate will become the main replacement for Libor in US financial markets, according to a number of experts speaking at the International Swaps and Derivatives Association’s annual general meeting, despite the emergence of some alternative lending rates.
The development of the SOFR market in the US has been slow, with interest-rate swaps tied to the new reference rate making up less than 2% of US trading volumes, according to data from IHS Markit, compared to over half of sterling swap trading volumes being linked to the UK s sterling overnight index average, or Sonia.
US loan markets, in particular, have been reluctant to move away from Libor and some borrowers are exploring the use of credit-sensitive reference rates instead of SOFR, which is virtually risk-free.
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LONDON Britain’s finance watchdog wants banks to speed up a shift to new interest rate benchmarks that replace the Libor rate which is being scrapped after December.
The London Interbank Offered Rate or Libor, once dubbed the world’s most important number, will be replaced at the end of December with “risk free” rates compiled by central banks.
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Try refreshing your browser, or Banks told to hit the accelerator in ditching Libor rate Back to video
Banks were fined for trying to rig Libor, and swathes of the market used for compiling Libor has all but dried up.
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Regulator says high volume of new Libor swaps traded since April 1 is linked to risk reduction Print this page
A senior UK regulator has dismissed concerns about the continued use of Libor in sterling derivatives markets, despite the fading benchmark underpinning nearly half of swaps notional traded since April 1, when participants were told to ditch the rate in all but risk-reducing trades.
Edwin Schooling Latter, director of markets and wholesale policy at the UK’s Financial Conduct Authority, said the “40-odd percent” of sterling swaps trades linked to Libor since the Bank of England and FCA
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