As the global financial industry girds for a move away from LIBOR, global policymakers are encouraging the adoption of new overnight risk-free rates (RFRs).
In an effort to facilitate the transition to new RFRs, the Financial Stability Board (FSB) published a guide on Tuesday that provides an overview of RFRs, their calculation methodologies and details about how they can be used in cash products.
The FSB said its guide is being published “to encourage adoption of these rates where they are appropriate.”
The move to alternative benchmark rates follows the market manipulation scandal involving interbank offered rates (IBORs).
“Overnight RFRs are robust because they are anchored in active, liquid underlying markets,” the FSB said, whereas IBORs can involve relatively few underlying transactions, which leaves them susceptible to manipulation.
“The FSB encourages the development and adoption of such overnight RFRs where appropriate… in order to enhance financial stability,” it said.