Our Insights

Regulatory Intelligence

Thomson Reuters

Canadian central bank launches revamped benchmark rate

The Bank of Canada (BOC) has begun administering the Canadian Overnight Repo Rate Average (CORRA), which replaces the London Interbank Offered Rate (LIBOR) interest rate benchmark. CORRA measures secured overnight rates based on transactionlevel data and will be posted on the BOC's website "as a public good" at no cost, the central bank said in a statement Monday.

The central bank, which replaced Refinitiv Benchmark Services (UK) Ltd. as benchmark administrator, issued a statement Monday stressing its commitment to ensuring that CORRA is a "robust, reliable, and representative measure” of overnight funding rates. Additionally, CORRA will be "readily available for use globally" as a key Canadian rate benchmark and will be aligned with the Principles for Financial Benchmarks established by the International Organization of Securities Commissions (IOSCO), the BOC said.

"The publication of CORRA by the Bank today is an important milestone in the collaborative efforts between the Canadian financial industry and the Bank to reform interest rate benchmarks and make financial markets even safer," Bank of Canada Deputy Governor Toni Gravelle said. "We expect that over time CORRA will become the dominant Canadian benchmark used across a wide range of financial products."


CORRA measures the cost of overnight general collateral funding in Canadian dollars using Government of Canada (GoC) treasury bills and bonds as collateral for repurchase transactions (known as "repos"), the central bank said on its website. The new benchmark is calculated based on transaction-level repo data that government securities distributors (GSDs), including primary dealers and Canada's six largest banks, submit to the Investment Industry Regulatory Organization of Canada (IIROC) through the Market Trade Reporting System (MTRS).

"This approach makes CORRA more robust, reliable and representative, similar to overnight risk-free reference rates published by other central banks," the BOC said. "The calculation methodology was developed under the guidance of the Canadian Alternative Reference Rate Working Group (CARR), representing a wide range of market participants."

In preparation for administering the new benchmark, the Bank of Canada collaborated closely with IIROC, which provides the data used to calculate CORRA, it added.

Replacing LIBOR

The regulator-led push to replace LIBOR, once a global benchmark for interest rates on everything from credit cards to trillions of dollars in derivatives, follows a rate-rigging scandal dating back to the global financial crisis of 2008.

The United Kingdom's Financial Services Authority (FSA) began investigating alleged interest rate manipulation in 2010, initially targeting Barclays PLC. Discount brokerage and money manager Charles Schwab Corp. filed lawsuits a year later accusing 11 major banks of conspiring to manipulate LIBOR. A subsequent U.S. investigation in 2012 examined possible collusion in communications between executives at Royal Bank of Scotland, HSBC Holdings, JPMorgan, Deutsche Bank, Barclays, UBS, and Citigroup.

Regulators fined UBS $1.5 billion in 2012 to settle LIBOR-rigging charges, and U.S. prosecutors charged two former UBS traders with participating in the manipulation. UBS's Japanese subsidiary also pleaded guilty to one U.S. criminal count of fraud. Additionally, the Royal Bank of Scotland (RBS) and the Dutch Rabobank were fined $612 million and $1 billion, respectively, for their role in the global rate-rigging scandal.

The U.K. Financial Conduct Authority (FCA) announced in 2017 that it would no longer require banks to submit rates for calculating LIBOR after December 31, 2021, prompting efforts to transition away from IBORs to risk-free, or nearly risk-free, rates calculated according to actual overnight transactions.

Canadian banks have noted that transitioning away from LIBOR would likely impact benchmark rate-referencing derivatives, floating rate notes, and other financial contracts with terms beyond 2021.

This content is created by Thomson Reuters and is strictly for information purposes only. It does not necessarily reflect the views of RBC Investor & Treasury Services (RBC I&TS) and is not intended as advice or a recommendation to engage in any regulated activity with RBC I&TS or any of the entities through which it operates. RBC I&TS accepts no responsibility or liability of any kind for the accuracy, reliability or completeness of the information, or for any action, or results obtained, from the use of the information.