On May 16, 2022 CARR launched a public consultation on whether there was a need for a forward-looking Term CORRA benchmark to replace CDOR in certain types of loan facilities. This consultation closed on June 30.
CARR received a significant number of responses (42), over half of which were from Canadian non-financial companies. These companies varied in size and sector, including manufacturing, utilities, real estate, retail, telecommunications, and pipelines. Financial firms accounted for 17 of the responses, including 11 banks, and the remainder were from public sector organizations.
The CARR co-chairs thank all those who provided feedback on the consultation. A formal summary of the consultation feedback will be released later in the fall.
The consultative feedback clearly indicates that there is a strong demand from Canadian companies for a forward-looking Term CORRA benchmark. About 90% of respondents, including all non-financial companies, said they wanted a Term CORRA benchmark. Feedback in favour of Term CORRA included: less operational complexity and cost, cash flow certainty, and the provision of a forward-looking discount rate. In response to the conclusions from the consultation, CARR has agreed to begin the process of developing a 1- and 3-month Term CORRA benchmark with the relevant stakeholders, as long as a robust benchmark can be created that is compliant with international best practices (IOSCO Principles for Financial Benchmarks) and Canadian benchmark regulations (i.e., MI 25-102).
As noted in the consultation, Term CORRA’s use will likely be limited through its licensing agreement to only certain financial contracts (i.e. loans and associated products). CARR has convened a working group tasked with identifying the allowable use cases for Term CORRA. CARR expects the Term CORRA administrator to begin publishing the benchmark by the end of Q3 2023. Any market participants referencing Term CORRA are expected to have in place robust fallbacks to overnight CORRA should the benchmark cease to be published in the future.
CARR is planning to publish a more comprehensive communication regarding Term CORRA later in the fall. The publication is expected to include (a) a detailed summary of the consultation, (b) CARR’s recommended methodology for the calculation of Term CORRA, (c) the allowable use cases for Term CORRA in financial markets and (d) next steps regarding the selection of a Term CORRA benchmark administrator.
Canada established CARR, a working group sponsored by the Canadian Fixed-Income Forum, to coordinate Canadian interest rate benchmark reform. CARR’s mission is to ensure Canada’s interest rate benchmark regime is robust, resilient, and effective in the years ahead. Over the coming transition period, CARR will support the transition from CDOR to CORRA as a key financial benchmark, including working to potentially create an IOSCO-compliant Term CORRA rate.
Visit CARR’s webpage for up-to-date information on the transition, including all of CARR’s key documents, and to sign-up to receive email updates from CARR.
Financial Markets Department
Bank of Canada
Managing Director and Vice Chair
CIBC Capital Markets
Bank of Canada