A form of transitional LIBOR that is “synthetically” created in order to account for a significant number of US dollar LIBOR contracts that have remained referenced to US dollar LIBOR after cessation of LIBOR. Based on a study in 2021, more than US$70 trillion of US dollar LIBOR exposures, worldwide, were estimated to remain outstanding beyond the planned cessation of US dollar LIBOR at the end of June 2023. Irrespective of the efforts to transition contracts away from US dollar LIBOR, a substantial number of US dollar LIBOR contracts were estimated to remain outstanding at the end of this month. The LIBOR’s regulator, the Financial Conduct Authority (FCA), took certain fixings  and measures for this market reality.

It required the publication of one-, three- and six-month US dollar LIBOR settings (the available settings) on a synthetic basis from July 2023 until the end of September 2024 (the so-called synthetic LIBOR)- being the aggregate of CME Term SOFR plus the ISDA fallback spread for the relevant “available setting” as published by certain market rate providers. It further permitted the entities it regulates to use synthetic LIBOR in all existing contracts except cleared derivatives, but not in any new contracts; and also designated synthetic LIBOR as “non-representative” of the market that LIBOR has historically poised to represent.