Financial spread betting and CFD brokers we will transition from using the Interbank Offered Rates (IBORs) to the new interbank benchmark risk-free rates (RFRs). They are doing this as most IBOR rates will cease to exist by the end of 2021. This change will affect how they calculate overnight fees on most of the products.
What are IBORs and why are they changing?
IBORs are widely accepted interest rate benchmarks used in financial markets. However, concerns over sustainability and viability led to regulators confirming that most IBOR rates will cease to be produced by the end of this year.
What will they be replaced by?
IBORs will be replaced with Risk-Free Rates (RFR). These are less volatile and more resilient in comparison, as they are based on more active and liquid overnight interest rates in wholesale markets. Plus, RFRs don’t include the credit risk associated with IBORs. To adjust for the missing credit risk, they will be adjusting the RFRs with the one-month spread adjustment proposed by the International Swaps and Derivatives Association (ISDA).
How this affects your trades
Each currency will have an alternative rate:
• GBP – SONIA
• USD – SOFR
• EUR – ESTR
• CHF – SARON
• JPY – TONA
• SGD – SORA
This transition will affect how they calculate overnight fees on their products – not including forex, futures contracts and zero commission stock CFDs. Check with your broker when you’ll be charged according to the reference RFR benchmark, as well as the adjustment from ISDA. Please note that a material change to overnight holding costs is not expected as a result of these changes.