Recommended actions in the event STIBOR is no longer provided

2021-12-17 | BMR News Markets Bank

The Swedish Bankers’ Association published a recommendation yesterday on the actions users of the STIBOR reference rate should take if STIBOR were no longer provided. Finansinspektionen (FI) would therefore like to clarify how we will issue statements, if necessary, in the event STIBOR ceases to be provided.

Most firms in the financial sector that use benchmarks are required to maintain written plans setting out the actions they would take in the event a benchmark materially changes or ceases to be provided. The provision is set out in the EU's Benchmark Regulation (BMR).

On 16th of December 2021, the Swedish Bankers' Association published a recommendation for the design of the written plans for STIBOR (Stockholm Offered Rate) if one or several of its maturities were to permanently cease to be provided as a benchmark. The objective of the recommendation is for there to be a market standard – a common solution –for contracts that refer to STIBOR.

Trigger events – if STIBOR were no longer provided

The Swedish Bankers' Association's recommendation assumes the occurrence of one of a number of defined events (a trigger event) which results in one or several of STIBOR's maturities permanently cease to be provided.
Several of the trigger events listed in the recommendation are linked to statements from FI in its role as a supervisory authority for STIBOR's administrator. Therefore, FI would like to make some clarifications here.

Statements from FI

FI is the competent authority under the Benchmarks Regulation. According to the regulation, the STIBOR administrator (the Swedish Financial Benchmark Facility, SFBF), must apply for authorisation from FI no later than 31 December 2021. The STIBOR administrator will thereby fall under FI's supervision (provided that the application is approved).

The statements that FI may issue as a supervisory authority must be clear and issued to all market participants at the same time. When FI issues such a statement, it will occur in the following manner:

  • The statement will be published on FI's website and in a press release.
  • The statement will contain clear information about STIBOR no longer being provided and thereby activate a trigger event.
  • The statement will specify the STIBOR maturities that will no longer be provided.
  • The statement will contain a date for one of the following:
    • when STIBOR's administrator will no longer provide STIBOR
    • when STIBOR will no longer be representative of the underlying market
    • when STIBOR will cease to be provided for some other reason.

Fallback rate for STIBOR

According to the recommendation, the reference rate that will replace STIBOR – if one or several of its maturities permanently cease to be provided – will be the compounded average of the transaction-based reference rate SWESTR for the corresponding maturity, plus a component that captures the historical difference between STIBOR and SWESTR (spread adjustment).

Transition to transaction-based reference rates

Even if a trigger event has not occurred and STIBOR can still be used, market participants have been able for some time to use SWESTR in financial contracts. Transaction-based reference rates like SWESTR are increasingly being used internationally, and some traditional reference rates – interbank offered rates (IBOR) such as LIBOR and EONIA – will soon cease to be provided.

An increase in the use of transaction-based reference rates, which have a high level of confidence and do not contain discretion, reduces the risk of manipulation and in turn contributes to enhancing both the integrity and the stability of the financial system. SWESTR makes it possible to use a fully transaction-based reference rate in financial contracts in Swedish kronor.