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New York budget contains LIBOR clauses

Chris Hamblin, Editor, London, 26 January 2021


The State of New York is introducing legislation to help its financial firms to cease to use the London Interbank Offered Rate, an interest-rate benchmark used in an estimated US$200 trillion of financial transactions which may be discontinued as soon as the end of this year.

No actual date for the end of LIBOR in New York is discernible in the legislative document, which contains the state's budget proposals for the year ahead. Instead, the draft refers to the "LIBOR discontinuance event" as any of the following, whichever is the earliest.

  • A public statement by the administrator of LIBOR announcing that it has ceased to provide LIBOR, with no successor administrator to take over.
  • A public statement by the regulatory supervisor for the  administrator of LIBOR, the US Federal Reserve System, an insolvency official with jurisdiction over same, a resolution authority with jurisdiction over same or a court or an entity with similar insolvency or resolution authority over the administrator for LIBOR.
  • A public statement by the regulatory supervisor for the  administrator of LIBOR announcing that LIBOR is no longer representative.

The document contains several definitions of various phrases, one of which is "fallback provisions," which in New York mean terms in a contract, security or instrument that set forth a procedure for determining a benchmark replacement, including any terms relating to the date on which the benchmark replacement becomes effective, without regard to whether a benchmark replacement can be determined in accordance with that procedure. The definition of "benchmark" itself is an index of interest rates or dividend rates that is used, in whole or in part, as the basis of or as a reference for calculating or determining any valuation, payment or other measurement under or in respect of a contract, security or instrument. "Recommended benchmark replacement" is the term for a benchmark replacement based on SOFR, the secured overnight financing rate published on a given day by the Federal Reserve Bank of New York, which is the benchmark's administrator, on its website.

On the LIBOR replacement date, the recommended benchmark replacement is, by law, to become the benchmark replacement for any contract, security or instrument that uses LIBOR as a benchmark now.

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