What are we transitioning to?

When transitioning from LIBOR to ARR (or from other IBORs), there are some things that differ. IBORs are forward looking interest rates which incorporates the banks’ credits risk (published for various terms, including overnight, 1w, 1m, 2m, 3m, 6m, 12m).

In contrast, ARRs are overnight interest rates with little or no credit risk incorporated. ARRs are based on real transactions between market counterparties, whereas IBORs are usually based on contributions from panel banks.

IBORs are normally published around 11 am. CET for the same date. Since ARRs are based on real transactions during the whole day, and there is a more rigorous process to validate the data, they are published on the following day. The exact time differs between currencies.

When using an ARR with an interest period of 1 or 3 months, the most correct way is to use a “backward-looking” rate. This means that the rate is not known in the beginning of the interest period, but only a few days before the interest payment is due.

The IBOR transition is seen as a market driven reform and as such there is an absence of regulatory guidance that could drive the development of market practice as well as ensuring a sync across currencies and products.

IBOR vs ARRs

IBOR is a term benchmark across multiple tenors
Contains Interbank credit risk
Forward looking rate
Published same day
Based on expert judgement and transaction data

Overnight rates with no term element
No Credit risk/ Risk free (or "near" risk free)
Backward looking rate
Published the next day
Based on transaction data

Overview Interest rate benchmarks in selected jurisdictions

Find below selected currencies the risk free rate alternatives and links to the ARR administrators

Jurisdiction	Currency	IBOR	ARR/RFR ¹	Admin. of alternative reference rate
United Kingdom	GBP	LIBOR²	SONIA	Bank of England
USA	USD	LIBOR³	SOFR	Federal Reserve Bank of New York
Switzerland	CHF	LIBOR²	SARON	SIX Swiss Exchange AG
Japan	JPY	TIBOR, LIBOR²	TONA	The Bank of Japan
European Union	EUR	EURIBOR, LIBOR²	€STR	European Central Bank
Sweden	SEK	STIBOR	SWESTR	Swedish Riksbank
Norway	NOK	NIBOR	NOWA	Norges Bank
Denmark	DKK	CIBOR	DESTR	Danmarks Nationalbank

1 fallback to IBOR
2 Ceased end of 2021
3 Will cease 30 June 2023

What is SEB doing?

SEB will actively transition existing impacted contracts to alternative reference rates before due cessation dates.

How can you as a client prepare for transition?

An overview of the general areas needed to be acted on or considered in the Benchmark

IBOR transition

Se an overview of the IBOR transition.

Disclaimer

This page has been compiled by SEB Large Corporates & Financial Institutions, a division within Skandinaviska Enskilda Banken AB (publ) (“SEB”) to provide background information only.

Opinions, projections and estimates contained in this report represent the author’s present opinion and are subject to change without notice. Although information contained in this report has been compiled in good faith from sources believed to be reliable, no representation or warranty, expressed or implied, is made with respect to its correctness, completeness or accuracy of the contents, and the information is not to be relied upon as authoritative. To the extent permitted by law, SEB accepts no liability whatsoever for any direct or consequential loss arising from use of this page or its contents. The analysis and valuations, projections and forecasts contained in this report are based on a number of assumptions and estimates and are subject to contingencies and uncertainties; different assumptions could result in materially different results. The inclusion of any such valuations, projections and forecasts should not be regarded as a representation or warranty by or on behalf of the SEB Group or any person or entity within the SEB Group that such valuations, projections and forecasts or their underlying assumptions and estimates will be met or realised.