The Canadian Dollar Offered Rate (CDOR), which was originally developed in the 1980s as the basis for pricing credit facilities related to bankers’ acceptances (BA), has more than C$20 trillion of gross notional exposure within the Canadian financial system referencing it, with the vast majority linked to derivatives.
Many market participants likely remember the scandal related to manipulation of the London Interbank Offered Rate (LIBOR) that plagued the financial sector in 2012, resulting in banks receiving over US$10 billion dollars in fines as well as jail sentences for several implicated traders. The scandal resulted in a shift in the U.S. from LIBOR, which relies on subjective judgment of a handful of individuals at certain banks, to the Secured Overnight Financing Rate (SOFR), a market-based rate that is derived from the overnight repo market. Canada is in the process of making a similar shift, which will include the removal of the BA product.
CDOR, which has been the primary interest rate benchmark in Canada for decades, will cease to be published starting in June 2024, with the majority of new derivatives shifting from CDOR to the Canadian Overnight Repo Rate Average (CORRA) this summer. The current year will see large changes in Canadian markets, as the end of CDOR will have significant implications for the Canadian fixed income market, the mortgage/consumer loan industry and investment companies and advisors.
Source: Bank of Canada, 2023.