Israel’s Switch from Telbor to SHIR: Are You Ready?

Israel’s switch to a new swaps benchmark requires market participants to understand and be ready for the upcoming transition to this new risk-free rate (RFR), as Matthew Scaddan, Emerging Markets Swaps Product Manager at Tradeweb, explains.

It is said that preparation is the key to success. And ahead of 30 June 2025, when Israel switches from the Tel Aviv Inter-Bank Offered Rate (Telbor) to the Shekel Overnight Interest Rate (SHIR) – the new overnight funding rate benchmark for the country’s $1.4tn swaps market – market participants are determined to make the transition a smooth and secure one. The Bank of Israel (BOI) started publishing SHIR in May 2022, but almost three years on it’s worth reiterating some of the changes afoot, and how best to prepare in the coming months.

What is changing, and why?

The BOI’s decision for replacing Telbor with SHIR is to align with industry standards, as IBOR interest rates continue to be replaced with risk-free overnight interest rates around the world.

And the emphasis here is on being risk-free. Where IBOR rates had infamously been the target of past manipulation, the way that SHIR (and other IBOR replacements) is calculated minimises or eliminates that risk. That’s because it’s an overnight index swap (OIS), calculated from averages of previously traded volumes rather than by a panel of banks with their estimations on the rate.

While the calculation itself may be relatively straightforward, the significant opportunity for market participants will be in converting all existing contracts to the new standard – and doing so ahead of the transition date.

How the industry has been preparing

There is some advantage to not being the first mover. The BOI is in the enviable position of having observed transitions away from IBOR benchmarks elsewhere in the world. It’s been clear that an RFR with an ultimate cessation date drives focused efforts across market participants to switch to the more transparent, secure benchmark. A hard date also gives profile to the change and allows the BOI and the industry to co-ordinate messaging and action. 

Understandably, banks, clearinghouses and other market participants have been working hard in preparation for the end of Telbor. After launching SHIR eligibility in September 2023, LCH, a multi-asset class clearinghouse, will begin automatically shifting existing trades from the old index to the new index as of 17 May 2025. LCH won’t allow any more cleared Telbor trade after May 17^th, so effectively the cleared market will move to SHIR overnight from then rather than waiting until June 30^th.

At Tradeweb, our preparation is well underway, and we will be ready with our RFQ and list trading protocols for SHIR at the end of February 2025. Our innovative NPV list trading tool helps clients to easily move cleared interest rate swaps (IRS) positions out of currency reference rates such as LIBOR or Telbor, into the risk-free SHIR, F-TIIE, SONIA, ESTR, SOFR, TONA, etc. benchmarks. The tool also facilitates central clearing counterparties (CCP) switches, re-couponing, portfolio compression, compaction, as well as trading multiple asset classes in one list.

How to prepare

In order to comply with the new RFR, clients have two options. They can either fall back on CCP which will convert existing cleared Telbor swaps to SHIR – this is scheduled for 17 May 2025. Or they can use Tradeweb’s RFQ or list tool functionality to convert ahead of this May date.

Between now and the 17^th of May, here are the steps you can take and guidance for your preparation efforts.

Early preparation is key

We would encourage you to use Tradeweb's list tool for early conversion. This will allow for a smoother transition and eliminate the need for unwinding trades later, which can be complex.

Anticipate hiccups and don't panic

Tradeweb analysed liquidity in the swaps market during previous LIBOR transitions and found that the implied cost of liquidity, as measured by bid-offer spreads, tightened in the weeks before a switch. Crucially, that excess soon diminished as the marketplace transitioned to the new standard.

The industry will crescendo

During other RFR transitions, such as SOFR and the more recent Mexican F-TIIE, we saw that while many firms had prepared themselves for the incoming benchmark, adoption was piecemeal. However, as with previous switches to RFRs, as deadlines fast approached, more liquidity built up and we saw more volume traded on our platform.

Stay tuned

As a nexus of swaps-trading activity, Tradeweb connects dealers and clients, clearinghouses and operators of order management systems with the ultimate aim of normalising trading on the new benchmark.

In the coming months we will continue to provide updates on the transition from Telbor to SHIR, with insights and guidance from industry experts. If you need any further information or would like to discuss this transition in more detail, reach out to your Tradeweb representative or visit our resource centre here.

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