ECB: Private sector working group issues recommendations on the transition from EONIA to €STR for cash and derivatives products
19 August 2019
The private sector working group on euro risk-free rates has published a report containing a set of recommendations addressing the impact of the transition from the euro overnight index average (EONIA) to the euro short-term rate (€STR).
The recommendations take an operational and valuation perspective, taking into account EONIA’s wide use as a reference rate and as a collateral remuneration and cash flow discounting rate. The report analyses the various financial products and processes affected by the transition, covering secured (e.g. repos) and unsecured (e.g. current accounts) cash products, securities, investment funds, derivatives and models referencing EONIA.
The report urges market participants to prepare for:
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the change in EONIA’s publication time from day T at 19:00 CET to the next business day T+1 at 9:15 CET that will follow the change in EONIA’s methodology as of 2 October 2019 (representing transactions executed on 1 October 2019); and
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the discontinuation of EONIA on 3 January 2022.
Regarding the change in EONIA’s publication time, the working group encourages market participants, among other things, to:
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screen their inventory of affected transactions and system environments to assess the modifications needed to cope with the change in EONIA’s publication time and prepare relevant teams for enhanced oversight during the cutover period;
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design a communication strategy geared towards internal and external stakeholders (clients in particular) to ensure awareness of impending changes;
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consider adjusting the default settlement time (i.e. the lag between the last fixing date and the settlement date) in certain cases.
Regarding the transition period until EONIA is discontinued on 3 January 2022, the working group recommends, among other things, that:
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market participants actively transition floating rate options (FROs)[1] referencing EONIA to €STR FROs before the end of 2021;
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central counterparty clearing houses (CCPs) align their discounting switch dates as much as possible to transition from an EONIA discounting regime to a €STR discounting regime, and set the discounting switch date as early as possible, preferably towards the end of the second quarter of 2020;
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market participants introduce all necessary modifications in order to be able to issue, buy, trade and manage new securities indexed to the €STR and avoid issuing new securities indexed to EONIA with maturities going beyond the transition period.
Press release
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