PIBOR runs under EMU - LEDR LEDR Logo

I must emphasise the disclaimer here, as what follows is scarcely credible, but I understand from the horse's mouth that the French Banking Association is recommending using Euribor for legacy PIBOR contracts on the basis of fixing date, not value date. So a PIBOR FRA fixing 5th January 1999 for value 6th will use the Euribor fixing published on 5th for value7TH!(Rather than that published on 4th for value 6th). This, apparently, has been agreed in the interests of simplicity on the basis of it all coming out in the wash.

If this is indeed true, look at your book NOW and make the implicit value date adjustments. In particular, CLOSE OUT any PIBOR FRA value 30th Sept., buyer or seller. That run will fix on 29th September and "should" end 31st Dec 1999, but will use a Euribor fixing with fixing date 29th September and Value 1st October to 3rd January 2000. THIS IS MILLENNIUM TURN MONEY IN DISGUISE.

The market will be slow to figure this out, and it will probably be mispriced for a while. But it is not worth trying to buy the things unless you want to spend the next millennium in court and you certainly should not be short. Just close them out.

William Porter 14th December 1998

The ultimate mismatch was worth many bp. There were many opportunities to get out - or get long - at little cost. Apparently some French banks took the opportunity to pay several London banks. As predicted here, a lawsuit has resulted. The winners: the lawyers. The losers: the banks, hopefully the paying traders and market liquidity. What a mess: predictable and predicted.

William Porter 10 th February 2000


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