The Canadian Alternative Reference Rate working group (CARR) today published a set of recommendations aimed at facilitating the widespread use of the Canadian Overnight Repo Rate Average (CORRA) in the Canadian financial system. These recommendations comprise:
- Conventions for floating rate notes (FRNs) that reference CORRA (such as day count conventions and calculation methodology).
- Conventions for loans that reference CORRA (also: a worked Excel example of these conventions and a comparison to conventions in other jurisdictions).
- Legal fallback language for FRNs that reference CORRA. Similar to the previously-published CDOR FRN fallback language, this legal language mirrors that developed by ISDA for the swaps market in order to facilitate hedging.
- Conventions for inter-bank interest rate swaps that involve either CORRA or CDOR and the US Secured Overnight Financing Rate (SOFR). An active and deep inter-bank swap market referencing CORRA across all tenors will facilitate increased use of CORRA across the Canadian financial system.
The use of these recommended conventions is voluntary, however they reflect broad input from across the Canadian financial system and have been endorsed by CARR members. CARR members expect that they will be broadly used, as recommended, in new contracts referencing CORRA. The CORRA FRN conventions published today also align with the recently announced CORRA conventions for CMHC’s Canada Mortgage Bond Program. CMHC, Canada’s largest FRN issuer, recently announced that starting in 2022 the Canada Mortgage Bonds Program will include CORRA as the reference rate for new floating rate CMB offerings of Canada Housing Trust.
Today, CARR also published a presentation by CARR’s co-chairs to the Canadian Fixed Income Forum, CARR’s sponsoring committee, detailing its key findings in its stock take of CDOR. CARR intends to publish a white paper detailing these findings, including forward-looking recommendations for CDOR, by the end of the year.
For an overview of Canadian benchmark reform, please see this two-page explainer.
The CARR co-chairs issued the following statement about the announcement: “The recommendations published today represent an important step towards promoting the use of CORRA in the Canadian financial markets. They help to identify a recommended market standard and prepare Canadian market participants for a post-LIBOR world where risk-free rates like CORRA take on a more significant role in the global financial system. CARR recommends that FRN issuers and investors as well as bank lenders and corporate borrowers understand these conventions and fallbacks with the objective of adopting them in future issuance.”