The SOFR/€STR pair was increasingly adopted by the market and further explained that an announcement had been published the day before this meeting (i.e. December 2nd) by the CFTC MRAC1 as part of the RFR First initiative, suggesting the 13th of December as a date for initiative to capture any other cross currency pairs referencing USD LIBOR in anticipation of the end of the year. Mr Wilson asked members if they would be willing to issue a recommendation to support market participants to adopt the SOFR/€STR pair as soon as they would be ready, also asking them if it would be suitable to make a specific recommendation in line with the latest CFTC MRAC’s announcements.
Some members shared views, arguing that the situation is different in Europe than in the US, making the case that EURIBOR is not to be discontinued and remains a very large market. These members argued that market participants could trade on both markets depending on clients’ needs, flagging that there might not really be a need for a specific recommendation on this topic. The same members also recalled the little liquidity in €STR market so far and stated that the market is likely to shift towards this direction with no need for such a specific recommendation.
On the contrary, the ECB representative recalled that a move towards RFR vs RFR in currency pairs would be in line with the FSB guidance and that issuing a recommendation on behalf of the WG could be helpful and provide the needed incentive for the market to shift towards full adoption of risk-free rates. This call for action was echoed by other members that flagged the need to act as – in their understanding – relying solely on the market shifting naturally would not allow for a coordinated shift across the globe. One member agreed with the need not to over rely on EURIBOR in accordance with the FSB guidance but argued that there would be a need for EURIBOR to remain a very active market, especially in cash markets.
The full minutes are available at https://www.esma.europa.eu/sites/default/files/library/eurwgrfr_-_3rd_december_meeting_-_final_minutes.pdf