The London Interbank Offered Rate, or LIBOR, is one of the most common series of benchmark rates referenced by contracts measured in the trillions of dollars across global currencies. About USD 350 trillion worth of contracts across the globe are pegged to LIBOR which is the key interest rate benchmark for several major currencies. The maturities on financial products based on LIBOR ranges from overnight to a year and is and the entire rate setting mechanism is administered by Intercontinental Exchange (ICE). Following the global financial crisis of 2008, calls grew to reform the process used to price LIBOR due to the way the rate was developed based on professional judgment by contributing banks, the lack of transactional data from which to derive such rates, and the potential for the rate-setting process to be manipulated as seen by regulatory enforcement and litigation in recent years.
As a result collectively the global regulators from the developed capital markets decided that the publication of the LIBOR will cease after December 2021 and will be replaced by Alternative reference rates (ARR) also known as Risk free rates (RFR) However as recently as 30 November 2020, ICE had announced its intention to extend the use of USD LIBOR till June 2023 for almost all maturity tenors except for one week and two-month tenors that will cease by December 2021. While ICE has issued a consultation to this effect, it seems to have in principle support from the UK and US regulators for the extension. The shift away from the most widely used interest rate benchmarks is an immense change to global finance that will have far-reaching impacts.