ECB seeks opinions on EONIA to €STR transition
24 December 2019 Frankfurt
Image: Shutterstock
The European Central Bank’s (ECB) working group on euro risk-free rates is looking for market feedback on the transition from the euro overnight index average (EONIA) to the euro short-term rate (€STR).
Specifically, the working group is looking for interested parties to comment on its technical analysis of the paths available for transitioning from Euro OverNight Index Average (EONIA) to €STR.
€STR is the euro risk-free rate set to replace the EONIA, which was previously the preferred overnight rate of all overnight unsecured lending transactions.
In addition to the feedback on the transition, the working group is also seeking advice on its assessment of alternative €STR-based term structure methodologies that can serve as a fallback for EURIBOR-linked contracts, as well as on their specific use cases.
The rate switch comes as part of the introduction of the EU’s Benchmarks Regulation (BMR), which first came into effect in 2016. As part of BMR’s introduction, EONIA was reviewed and found to suffer from a lack of underlying transactions and a high concentration of volumes on just a few contributors supporting the benchmark.
In November, the working group proposed €STR fallback arrangements and advised that in switching to €STR, supervised entities should have “robust written plans” setting out the actions they would take in the event that a benchmark materially changes or ceases to be provided.
The working group on euro risk-free rates is an industry-led group established in 2018 by the European Central Bank, the Financial Services and Markets Authority, the European Securities and Markets Authority and the European Commission.
Specifically, the working group is looking for interested parties to comment on its technical analysis of the paths available for transitioning from Euro OverNight Index Average (EONIA) to €STR.
€STR is the euro risk-free rate set to replace the EONIA, which was previously the preferred overnight rate of all overnight unsecured lending transactions.
In addition to the feedback on the transition, the working group is also seeking advice on its assessment of alternative €STR-based term structure methodologies that can serve as a fallback for EURIBOR-linked contracts, as well as on their specific use cases.
The rate switch comes as part of the introduction of the EU’s Benchmarks Regulation (BMR), which first came into effect in 2016. As part of BMR’s introduction, EONIA was reviewed and found to suffer from a lack of underlying transactions and a high concentration of volumes on just a few contributors supporting the benchmark.
In November, the working group proposed €STR fallback arrangements and advised that in switching to €STR, supervised entities should have “robust written plans” setting out the actions they would take in the event that a benchmark materially changes or ceases to be provided.
The working group on euro risk-free rates is an industry-led group established in 2018 by the European Central Bank, the Financial Services and Markets Authority, the European Securities and Markets Authority and the European Commission.
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