On 8 July 2021, Hong Kong Monetary Authority (HKMA) issued a circular to all authorised institutions (AIs) requesting them to give a further push to promote the corporate sector’s awareness of LIBOR transition.
HKMA requested each AI to (i) distribute a leaflet (enclosed with the circular) by 31 July 2021 to all of its corporate customers that have outstanding LIBOR-linked contracts with the AI; and (ii) send an email confirmation to HKMA after completing that exercise.
The leaflet entitled “Transitioning away from LIBOR – Important Points to Note for Corporate Treasurers” is jointly developed by HKMA and the Treasury Markets Association (TMA). The leaflet contains a link to updated benchmark transition Q&As for Corporate Treasurers to reflect developments since the original Q&As were published by HKMA and TMA in July 2020. One major development is that overseas authorities now have confirmed that most LIBOR settings will be discontinued starting from 1 January 2022. Other updated information in the Q&As includes:
- If, before 25 January 2021, corporates entered into LIBOR-linked derivatives contracts referencing the 2006 ISDA Definitions, they are strongly encouraged to evaluate, as soon as possible, whether they should adhere to the ISDA 2020 IBOR Fallbacks Protocol as an effective way to implement fallback provisions in these contracts. Corporates may wish to contact their bankers to understand more about this.
- Term structures of certain ARRs (e.g. SONIA and TONA) have already been available for use by market participants. Other term ARRs still are being developed and will not be ready for use until they are finalized and recommended by their relevant overseas authorities. Notwithstanding this, interest payments based on overnight rates can be calculated using methods that are commonly adopted by the industry for various types of contracts (such as simple or compounded averaging). Corporates are advised to consider using these methods and promptly consult their banks on how they can be applied and should not wait for the availability of term ARRs. Corporates should also look into necessary changes that may be required, including IT system changes.