Recommended Legal Action Plan for Transition from EONIA to €STR

Following its consultation earlier this year, the working group charged with implementing the European market's move away from EONIA, has published a recommended legal action plan for new and legacy contracts referencing EONIA. The implementation of the recommended legal measures is intended to address issues arising from the transition from EONIA to the euro short-term rate (known as €STR). €STR is a risk-free rate and, with a fixed spread, will replace EONIA as a reference rate in a variety of euro-denominated financial contracts, including derivatives, collateral remuneration for derivatives and cash products such as commercial paper, repurchase agreements and default interest payable under syndicated loans.

The working group's recommendations include:

• using €STR plus the Spread as the EONIA fallback rate for all products and purposes;
• ceasing to reference EONIA in new contracts from October 2, 2019, in particular new contracts maturing after December 31, 2021;
• where new contracts still reference EONIA and mature after December 2021 or fall within the scope of the EU Benchmarks Regulation, using the working group's fallback provisions, which are set out in the recommendations;
• for legacy contracts referencing EONIA and maturing after December 2021, replacing EONIA as a primary rate as soon as possible or using the group's fallback provisions; and
• that industry associations continue to update their standard documentation.

The recommendations are not legally binding on market participants, but the group notes that timely and consistent implementation of the recommendations will assist a smooth transition from EONIA to €STR plus the Spread.

View the recommended legal action plan.

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