Work on new Canadian benchmark begins

Following a consultation on the planned replacement of the Canadian Dollar Offered Rate (CDOR) benchmark, an industry working group has begun developing a forward-looking alternative rate.

Already, the survey-based CDOR is being replaced by a risk-free rate based on actual transaction data, known as the Canadian Overnight Repo Rate Average (CORRA), in securities and derivatives transactions by the end of June 2023. Now, work on a Term CORRA benchmark has also started.

An industry group, known as the Canadian Alternative Reference Rate (CARR) working group, announced that a consultation, which was launched in the spring, found that there is “strong demand” from Canadian companies for a “forward-looking Term CORRA benchmark” to replace CDOR in certain products (such as loans and related hedges).

The CARR said that it has started the process of developing a one- and three-month benchmark, with the goal of crafting a benchmark that meets Canadian regulatory standards and international best practices (as set out in the IOSCO Principles for Financial Benchmarks).

It’s expected the new benchmark’s administrator will begin publishing it by the end of the end of the third quarter in 2023.

During the consultation, 90% of participating companies (both 17 financial firms and others outside the financial sector) said they wanted a Term CORRA benchmark, the working group reported.

Supporters of a Term CORRA benchmark cited reasons such as “less operational complexity and cost, cash flow certainty, and the provision of a forward-looking discount rate,” the group reported.

CARR plans to release a detailed summary of the feedback — along with a proposed methodology for the new benchmark, proposed permitted uses (likely certain loans and related products), and the process for selecting a benchmark administrator — at a later date.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.