London Interbank Offer Rate (LIBOR) Phase-Out
Important Information for Baird Clients regarding the London Interbank Offer Rate (LIBOR) Phase Out
The London Inter-bank Offered Rate (LIBOR), the most broadly used benchmark for short-term interest rates globally, is transitioning to alternative benchmarks. Baird expects many published LIBOR metrics will be phased out by December 31, 2021.
Due to its significance, a transition from use of LIBOR will have a broad impact on many financial products and services, including certain of those offered to Baird clients. Found below is important information about the types of products and services offered by Baird that will be impacted by the transition from LIBOR. Please view an update from Baird’s Private Wealth Management Wealth Solutions Group on the status of the LIBOR transition and potential successor interest rates.
For more information regarding the impact of the LIBOR transition to your investments, please contact your Baird Financial Advisor.
Borrowing on Margin from Baird
Margin involves borrowing money from us to buy securities or for other purposes. Clients who borrow from Baird using margin will pay us interest on the amount borrowed. Baird currently determines this interest rate by referencing commercially recognized interest rates (such as the broker call rate, the prime rate, the fed funds rate and/or LIBOR) and other factors such as cost of capital, industry conditions relating to extension of margin credit, and general market or competitive considerations. Effective June 30, 2021, Baird will end its practice of referencing LIBOR as an input to its determination of prevailing margin rates. Although Baird will not immediately replace reference to LIBOR with an alternative rate, Baird may do so in the future.
The current interest rate that will apply to your margin loan is always available by visiting https://www.rwbaird.com/help/loan-rates/ or contacting your Baird Financial Advisor.
Baird’s Securities-Based Lending Program
We offer you an opportunity to borrow money from a third-party bank, currently Tri-State Capital Bank, under our Securities-Based Lending Program. These loans, if made, can generally be used for any personal or business purpose other than to purchase, carry or trade securities, or to repay margin debt. Borrowings are secured by the investments and other assets in your accounts with us. You will pay interest on the outstanding balance of your loan. The rates of interest charged by the bank depends on many factors, such as the prevailing interest rate environment, the amount of the loan or line of credit, your creditworthiness, and the aggregate assets in your Baird accounts in your household (“relationship size”). The interest rates are based on a benchmark rate (currently 30-day LIBOR), plus an applicable percentage that varies based on the approved loan amount and the relationship size. As of June 30, 2021, Tri-State is currently evaluating alternative rates to replace reference to 30-day LIBOR. Affected clients will receive a notice in advance of this transition.
Please check this page for updates or contact your Baird Financial Advisor for additional information on this transition.
Other Investments or Holdings
Baird provides access to financial instruments which directly and indirectly reference the LIBOR and other interbank offered rates and similar benchmarks which have been subject to reform. Outstanding financial instruments that reference affected benchmarks at the time of their discontinuation will be impacted, perhaps significantly. This may have a negative impact on the value of the financial instrument. Where benchmarks are materially changed, financial instruments referencing them may no longer perform in the way anticipated when they were issued or sold.
It is important to understand the terms as they relate to the transition from LIBOR. In some cases, affected payments will be calculated with reference to another stated alternative benchmark. However, if, for example, the terms and conditions of such instrument do not contemplate an alternative benchmark, the calculation agent (which may be Baird) will have considerable discretion to choose an alternative way of calculating affected payments, such as choosing an alternative rate. One such example where Baird serves as remarketing agent on variable rate demand obligations (sometimes referred to as “put bonds”) that are available for purchase in your account. With respect to these securities, Baird will cease use of LIBOR as a reference rate prior to its applicable sunset date.
It is also possible you may indirectly own, through your ownership of mutual funds, UITs, ETFs, annuities or other similar products, financial instruments that will be affected by the transition from LIBOR. Additional information regarding the potential impact of the LIBOR transition may generally be found in the product’s prospectus or other offering materials.
Please contact your Baird Financial Advisor for additional information, including information about your individual holdings.