1. Justin Wray IRSG meeting on 15 September 2016
Agenda item 6: (6.2) Risk free rate methodology: deep liquid transparent assessment
Justin Wray
IRSG meeting on 15 September 2016

2. Introduction Issue Action asked from IRSG Follow-up
EIOPA’s assessment of the depth, liquidity and transparency of financial markets.
Action asked from IRSG
To note. Tentative results shared with industry stakeholders on 26 July 2016.
Follow-up
None at this stage.

3. What is the DLT assessment?
Use of financial market data to calculate the risk free rates of 35 currencies.
Derived from interest rate swaps or, if unavailable, government bonds
Criteria for whether a currency is DLT are:
availability of financial instruments
bid-ask spread
trade frequency
trade volume
Reviewed annually

4. Why does the DLT assessment matter?
Determines the “last liquid point” of each currency
The sooner the last liquid point, the greater the impact of the UFR on liabilities
Direction of that impact depends on whether the rate at the last liquid point is greater or less than the UFR
Singapore dollar – June 2016
Russian rouble – June 2016
i.e. which part of the risk free rate curve is based on market data and which part is extrapolated from the last liquid point to the ultimate forward rate (UFR)

5. Next steps
Outcomes of DLT assessment to be implemented for risk free rates calculation of end-December 2016