Long a mainstay of the financial world, the floating “IBOR” rates, based on the rates of actual or purported interbank offered loans, are now being swept slowly into the dustbin of history. The quantity, in both number and size, of existing financial products based on these floating rates is enormous, with the outstanding principal amount of such transactions globally estimated to be in the hundreds of trillions of dollars. IBORs are used extensively in numerous currencies as bases for floating rates in a wide range of transactions including derivatives, structured products, mortgages, floating rate securities and other consumer and commercial loans. A phase-out of the use of familiar benchmarks will therefore be a massive undertaking that will take many years to accomplish. In this article we review, primarily in relation to derivatives, the state of play regarding the IBORs, their possible replacements, prospects for a transition to new floating rates and some of the issues that parties to existing and new IBOR-based transactions should consider.
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