Poland launches consultations on use of new POLSTR in floating rate bond issues
The Polish national working group for benchmark reform (NGR) has launched public consultations on recommendations concerning the rules and methods for using the new POLSTR index in floating rate bond issues. The consultations will last until September 5, 2025.
The draft recommendation contains two recommendations.
Recommendation 1: for the calculation of interest payments in variable-rate debt securities issues, it is recommended to use the POLSTR index compiled according to the lookback with observation period shift method.
Recommendation 2: Interest payments should be calculated using the recommended 'shift' method by dividing the POLSTR Single Base Index at the end of the observation period by the POLSTR Single Base Index at the beginning of the observation period.
According to the justification for the draft, among the methods of calculating interest payments considered – used or possible to use in variable-rate debt securities issues – the recommended 'shift' method offers the best balance of desirable features, i.e. economic correctness, comprehensibility for the purchaser and adaptation of the market infrastructure.
"The other methods are not recommended for general use, although they may be applicable in selected issues due to their specific nature or as simplified methods during a transitional period," the document states.
"An example is the last reset method – on the one hand, it requires little adjustment of the market infrastructure, but on the other hand, it generates interest rate risk due to the use of historical interest rates instead of current ones," it added.
According to the document, interest payments can be calculated using the recommended 'shift' method in two mathematically equivalent ways: by compounding (calculating the compound interest) the POLSTR index over a specified observation period, or by taking the quotient of the POLSTR Single Base Index at the end and beginning of that period.
"The second of these methods is less prone to calculation errors, which increases reliability and enables faster verification of the results obtained," it added.
The POLSTR index is ultimately intended to become the benchmark to replace the WIBOR index.
According to the roadmap for the reform of reference rates, updated in April, the deadline for converting all financial instruments to the new POLSTR index is the end of 2027, and participants in the Polish financial market are to be ready to cease the development and publication of WIBOR and WIBID rates from the beginning of 2028.
tus/ han/ nl/