September 26, 2018 / 12:12 PM / in 7 months

Derivatives industry calls for delay in euro benchmark switch

LONDON, Sept 26 (Reuters) - The European Union should delay the replacement of a key euro zone market benchmark to ensure a smooth transition, a top derivatives industry official said on Wednesday.

After banks were fined millions of dollars for trying to rig the Libor and its sister benchmarks that are widely used in trillions of dollars of contracts like mortgages and credit cards, authorities in Europe and elsewhere are ushering in replacements.

A benchmark known as ESTER, compiled by the European Central Bank, will replace the current EONIA benchmark used in the euro zone.

But ESTER won’t be available until October next year, just months before EONIA is due to be withdrawn at the end of 2019 as it won’t comply with EU rules coming into force at that time.

Scott O’Malia, chief executive of the International Swaps and Derivatives Association (ISDA), whose members he said face a “monumental” task of moving contracts to new benchmarks, said the timetable for moving to Ester is “very difficult to achieve”.

“It does feel like a delay is required because of the time frame to get these things in order,” O’Malia told reporters on the sidelines of ISDA’s annual European conference.

Vladimir Tsonchev, an expert in the ECB’s market operations unit, told the conference that ESTER would be published on a daily basis from next autumn “at the latest”.

Separately, Britain’s Financial Conduct Authority has set an end of 2021 deadline for the British market to shift from using Libor to the Bank of England’s Sonia sterling benchmark.

Many banks face having to migrate to several new benchmarks like Ester and Sonia at roughly the same time.

“The 2021 deadline... is going to take everybody’s heroic effort to get that ready. Any additional time we can buy in terms of the European benchmark, either align that or additional time, would be welcome,” O’Malia said.

“We need to develop products, solutions and fallbacks.” (Reporting by Huw Jones; Editing by Adrian Croft)

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