On Nov. 15, 2023, Bloomberg Index Services Limited (BISL) issued a statement announcing the cessation of the Bloomberg Short-Term Bank Yield Index (BSBY).
This follows its final publication on Nov. 15, 2024 as per Bloomberg's announcement.
On Nov. 20, 2023, ISDA confirmed that BISL's announcement constitutes an Index Cessation Event for purposes of the 2021 ISDA Interest Rate Derivatives Definitions.
ISDA also references 2006 ISDA Definitions and 2018 ISDA Benchmarks Supplement.
Relevance to LCH LTD
As stated in Circular 4284, this event is relevant to LCH LTD since its SwapClear service provides clearing of eligible USD BSBY swaps, as per LCH LTD clearing page.
BISL’s decision not to recommend a fallback replacement rate for BSBY significantly complicated any potential conversion approach and LCH LTD confirm it is not feasible.
LCH LTD continues to strongly encourage all SwapClear users with outstanding BSBY swap positions cleared at LCH to actively reduce and/or close out their exposures.
Liquidity conditions in underlying market have further deteriorated, and this has had a material negative impact on LCH LTD's ability to risk manage open BSBY Positions.
In response to this, SwapClear states it will terminate outstanding BSBY Positions at LCH’s prevailing valuations, and termination event is scheduled on May 13, 2024.
All outstanding BSBY Positions will be terminated by LCH LTD as of this date, and any associated variation margin and/or initial margin changes will be calculated.
It will also be processed and payable as part of that day's EOD settlement cycle.
BSBY swap contracts will no longer be eligible at SwapClear on and from that date.
Effectiveness
SwapClear will no longer clear BSBY swap contracts as of May 13, 2024.
