At a SIFMA Roundtable on December 2, 2015, representatives of the European Money Market Institute (“EMMI”) explained their plan to change the Euribor rate from the current quotation-based system to a rate based on actual transactions. The new rate will be called Euribor+. According to EMMI, one of the goals is to achieve a “seamless transition” in which no current EURIBOR-based contracts would be disrupted. At the end of the transition, Euribor+ will continue to be published on the same data vendor pages, such as Reuters page EURIBOR01. EMMI administers the Euribor and Eonia rates.
Currently, Euribor is defined as “the rate at which euro interbank term deposits are being offered within the EU and EFTA countries by one Prime Bank to another at 11:00 a.m. Brussels time.” The definition of Euribor+ would be “the rate at which banks of sound financial standing could borrow funds in the EU and EFTA countries in the wholesale, unsecured money markets in euro.”
The key difference between current Euribor and Euribor+ is that Euribor relies on quotes and member bank estimates of prime bank activity, while Euribor+ will rely on actual wholesale borrowing transactions executed by the member bank. Euribor’s current estimate of bank funding rates as a point-in-time average will be replaced by the Euribor+ backward- looking period average.
One result of the planned changeover will be that ISDA will have to amend Section 7.1(f)(iv) (“EUR-EURIBOR-Reference Banks”) of the 2006 ISDA Definitions. This provision refers to rates quoted by major banks in the Euro-zone at approximately 11:00 a.m., Brussels time, for offered deposits in euros by four banks in the Euro-zone, and loans in euros to leading European banks. These fallback provisions would also have to be changed to transaction-based quotes, mirroring Euribor+. Documents for securities offerings, such as medium-term note programs, will also be modified to reflect these developments.
The transition to Euribor+ is targeted to take effect on July 4, 2016. Bring on the fireworks!