The Alternative Reference Rates Committee (ARRC) today released a report detailing preliminary considerations for the use of risk-free rates (RFRs) in interdealer cross-currency swaps. Cross-currency swaps are actively used by many buy side, sell side, and intermediary market participants. These swaps currently reference LIBOR and other interbank offered rates (IBORs), and it will be important to develop new structures that can be based on RFRs.
The report was developed by the Cross-Currency Swaps Subgroup of the ARRC’s Market Structures and Paced Transition Working Group in cooperation with working groups from other currency jurisdictions (including representatives from national working groups in Canada, the euro area, Japan, Switzerland, and the United Kingdom), industry trade associations, clearing and settlement infrastructure providers, and other market participants.
The report summarizes the Subgroup’s work and outlines potential conventions for interdealer trading of RFR-RFR and RFR-IBOR cross-currency swaps. The report also covers discussions with the International Swaps and Derivatives Association (ISDA) about some potential benefits of a template that would allow market participants to ensure that both legs of a legacy cross-currency swap referencing IBORs would concurrently move to successor rates.
The Subgroup is working with several industry trade associations, including the Association for Financial Markets in Europe, the Global Financial Markets Association, ISDA, and the Securities Industry and Financial Markets Association, to receive wider feedback from market participants on the market conventions and other aspects described in the report.