Fears EU’s ‘tough legacy’ fix could tie risk managers’ hands
Proposal bans use of replacement rate in new products, which some fear could hamper hedging and novations
The European Union’s proposed approach to tackling Libor-linked products classed as “tough legacy” have caused concern among market participants, with some worrying it could limit banks’ ability to risk-manage the products in the future. Others are worried about a potential clash of rules on cross-border products.
The tough legacy moniker relates to products where it is impossible to insert fallback language that would switch them to an alternative rate when the Libor benchmarks end. EU
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