Frequently Asked Questions (FAQs) on the transition of LIBOR interest rates and impacts on Open End Turbo Warrants, Mini Future Warrants and Factor Certificates
1. What is the background?
On 5 March 2021 the UK Financial Conduct Authority (FCA) announced the future cessation and loss of representativeness of the LIBOR interest rate. Pursuant to the announcement all 7 euro LIBOR settings, all 7 Swiss franc LIBOR settings, the Spot Next, 1-week, 2-month and 12-month Japanese yen LIBOR settings, the overnight, 1-week, 2-month and 12- month sterling LIBOR settings, and the 1-week and 2-month US dollar LIBOR settings will cease immediately after 31 December 2021. The publication of the overnight and 12-month US dollar LIBOR settings will cease immediately after 30 June 2023.
Regulatory authorities and central banks are strongly encouraging the transition away from LIBORs and have identified "risk-free rates" (RFRs) to replace LIBORs as primary benchmarks.
Goldman Sachs will from 7th May 2021 onwards use RFRs as reference rates for newly issued Open End Turbo Warrants, Mini Future Warrants and Factor Certificates and to that extent will no longer refer to LIBORs.
2. What are the new risk-free rates (RFRs) that will replace the respective LIBOR interest rates?
National working groups of market participants, central banks, and regulators have recommended the following RFRs which Goldman Sachs is going to apply going forward instead of the corresponding LIBORs:
3. How are structured products issued by Goldman Sachs affected by such change in LIBOR interest rates?
Open End Turbo Warrants, Mini Future Warrants and Factor Certificates are adjusted on any adjustment day (in general any business day) and in the course of such adjustment the financing rate of the respective product is taken into account. The financing rate consists of an interest margin determined by Goldman Sachs and a reference rate specified in the relevant final terms. The reference rate is usually a short-term/overnight interest rate in the currency of the underlying. For products issued prior to 7th May 2021 Goldman Sachs has used the respective LIBOR rate in the currency of the underlying (e.g. for shares denominated in EUR the EUR LIBOR).
For Open End Turbo Warrants, Mini Future Warrants and Factor Certificates issued on or after 7th May 2021 Goldman Sachs will apply the respective RFRs as relevant reference rate (e.g. for shares denominated in EUR the €STER). Due to the different calculation methods of the RFRs and the LIBORs it should be noted that there may be differences between the RFRs and the respective LIBOR interest rates. Consequently. Open End Turbo Warrants, Mini Future Warrants and Factor Certificates which use an RFR in the calculation of their financing rates may not perform in the same manner as corresponding products which use a LIBOR rate as the relevant reference rate.
You can see the total financing costs, compromised of the financing spread and the reference rate, on the each of the product detail pages of Goldman Sachs products (see screenshot).
4. Will this only affect new products or also existing products?
Each Open End Turbo Warrant, Mini Future Warrant and Factor Certificate issued by Goldman Sachs from 7th May 2021 onwards will use the respective RFR as the relevant reference rate.
For the time being, Goldman Sachs will continue to use the relevant LIBOR rate specified in the applicable final terms for products issued prior to 7th May 2021. However, Goldman Sachs may decide to replace such LIBOR rate with the corresponding RFR in the future if provided for in the terms and conditions underlying the respective product. In such case Goldman Sachs will publish a separate notice.