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LIBOR set to go and SOFR to replace it as new benchmark: Five questions answered

Indian banks have slowly started migrating to SOFR, the new reference rate that will replace LIBOR from next year onwards.

March 09, 2021 / 03:21 PM IST
LIBOR is the interest rate average submitted by leading UK banks.

LIBOR is the interest rate average submitted by leading UK banks.

 
 
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LIBOR, or London Inter-bank Offered Rate, is finally bidding farewell from global markets as the global banks are preparing for a transition to new alternative reference rate (ARR) such as the secured overnight financing rate (SOFR). The transition is already happening to the new benchmark. Here’s a short explainer about the whole concept.

What are LIBOR and SOFR?

These are benchmarks against which global banks mark their transactions. SOFR is linked to US treasury market transactions. LIBOR is the interest rate average submitted by leading UK banks. The transition from LIBOR is confirmed with, on March 5, the UK Financial Conduct Authority (FCA) issuing a statement announcing the cessation dates for all LIBOR settings.

So, what are the dates?