On May 16, 2022, Refinitiv Benchmark Services Limited (RBSL) announced that the calculation and publication of all CDOR tenors will cease immediately after their final publication on June 28, 2024. At the same time, the Ontario Securities Commission and the Autorité des marchés financiers issued decisions authorizing RBSL to cease the publication of CDOR, and ISDA confirmed that the RBSL’s announcement constitutes an “Index Cessation Event” under the ISDA Fallbacks Supplement and Fallback Protocol.
For background, CME Group incorporated the ISDA IBOR fallbacks in January 2021. Based on the positive outcomes achieved from other recent benchmark transitions to risk-free-rates (RFRs), including for USD LIBOR cleared swaps, CME Group is proposing to leverage a similar playbook whereby any legacy in-scope CDOR swaps would be converted into CORRA overnight index swaps (OIS) prior to the June 2024 cessation event.
In line with the methodology CME Group used to convert cleared USD LIBOR swaps, a cash adjustment would be included as a part of the conversion process to compensate for any changes in valuation from the original, legacy CDOR swaps. This is intended to ensure that the conversion event would be a zero-sum event from a PNL perspective at the point of conversion as compared to ISDA fallbacks.
This conversion process benefits the marketplace by:
- Creating a single transparent liquidity pool for trading CORRA overnight index swaps.
- Providing participants certainty that their “legacy” and “new” contracts would be fungible with one another following the CDOR cessation.
- Market standard OIS are already widely supported by participants and market infrastructure today. This conversion approach removes the need to operationally support the “Observation Period Shift” defined in the ISDA Fallbacks.
Image and article originally from www.cmegroup.com. Read the original article here.