The first stage of CARR’s two-staged transition plan will be completed on June 30, 2023. Market participants are expected to have transitioned all new derivative (bilateral, cleared and exchange traded) and securities transactions to CORRA benchmarks, with limited exceptions, after June 30, 2023. This milestone has been reinforced by supervisory guidance from the Office of the Superintendent of Financial Institutions.
CARR would like to reiterate that the following activities referencing CDOR will still be permitted under stage 2 of CARR’s transition plan after June 30, 2023:
- New lending activity
- Derivative transactions that hedge new or existing CDOR related loans or existing securities
- Derivative transactions that reduce existing CDOR risk
- Derivative market-making activities that reduce a counterparty’s existing CDOR risk
- Securities trading of existing, or legacy, CDOR related securities issued prior to June 30, 2023
- CDOR-based payments on loans, securities, and derivatives issued prior to June 30, 2023
- Hedging of CDOR exposure embedded in structured products issued prior to June 30, 2023
Risk-reducing in this context refers to transactions that reduce the overall sensitivity of a firm’s assets or liabilities to CDOR. However, reducing the CDOR risk for clients may increase the CDOR risk for the market-maker.
CARR strongly recommends that firms move away from CDOR as soon as possible. Although market participants can continue to enter into CDOR derivatives after the end of June 2023 based on the above limited exceptions, it is expected that liquidity in CDOR related derivatives will decline after that date with bid offer spreads widening.
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 the key Canadian interest-rate benchmark.
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.
Senior Policy Director
Financial Markets Department
Bank of Canada
Managing Director and Vice Chair
CIBC Capital Markets
Bank of Canada