The People's Bank of China ("PBOC") released a white paper on August 31, expressing its intention to adopt the Depository-Institutions Repo Rate ("DR") as the alternative substitute rate in the Chinese banking market. Several pricing indicators were used in Chinese banking market, including Repo Rate ("R"), DR, Fixing Repo Rate ("FR"), General Collateral Repo Rate ("GC"), Loan Prime Rate ("LPR"), China Interbank Offered Rate ("CHIBOR") and Shanghai Interbank Offered Rate ("SHIBOR"). The white paper discusses the possibility of these indicators as alternative substitute rate and concludes that amongst these, DR has become the most important indicator amongst such rates in the PRC lending market. According to the white paper, DR is the indicator which best reflects the liquidity condition and financing interest rates in the banking system, and is already widely accepted by the market.

PBOC has indicated in the white paper that it will adopt several measures to promote the future calibration and development of use of DR: including (a) PBOC will encourage the issuance of floating rate debts referencing DR (simplifying the approval procedure and expediting or prioritizing processing of floating rate debt using DR); (b) it will promote interest rate swap transactions referencing DR; (c) it will encourage financial institutions to reference DR in the interbank transactions; (d) it will encourage international organizations to adopt DR as the interest rate calculation basis for RMB yuan; and (e) it will consider establishing term rates based on short-term DR.

Chinese banks have also established high level working groups to evaluate the impact of LIBOR transition and closely monitor international updates and contribute to the timeline and roadmap design of the LIBOR-DR transition in China.

According to a press release by Standard Chartered Bank on September 11, Standard Chartered Bank has closed the first cross-currency swap transaction referencing SOFR and DR. Wesley Yang, head of financial markets at Standard Chartered Bank China, said: "The initiation to promote DR as an effective interest rate benchmark for market transactions will play a key role in furtherance of China's reform on interest rate liberalization, developing the derivatives market and improving the efficiency of China's financial market in resource allocation."

Visit us at www.mayerbrown.com

Mayer Brown is a global legal services organization comprising legal practices that are separate entities (the Mayer Brown Practices). The Mayer Brown Practices are: Mayer Brown LLP, a limited liability partnership established in the United States; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales; Mayer Brown JSM, a Hong Kong partnership, and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

© Copyright 2020. The Mayer Brown Practices. All rights reserved.

This article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein. Please also read the JSM legal publications Disclaimer.