IBOR Transition: SOFR 101

Updated as of September 3, 2020

Introduction

2

Why Transition Out of LIBOR?

The transition of financial markets from Interbank Offered Rates

(IBORs) to alternative risk-free rates (RFRs) gained traction in

July 2017 when the UK Financial Conduct Authority announced

they would no longer compel banks to contribute to LIBOR after

2021.

LIBOR funding market changes and new structural risks have

caught the eye of regulators around the globe:

→ Basel III (NSFR): binding liquidity metrics limit the banks’

ability to use short-term unsecured funding.

→ Manipulation: scandals have shaken the confidence in the

process.

→ Legal Risk: panel banks are concerned about legal

scrutiny.

→ Stability: IBORs spiked during the financial crisis as banks

stopped lending.

Fixed Income

Estimated USD LIBOR Footprint

By Asset Class ~ $200 trillion1

Exchange Derivatives

Loans

OTC Derivatives

IR Swaps

IR Forwards

XCCY Swaps

IR Options

IR Options

IR Futures $45T

$145T

Syndicated

CRE

Nonsyndicated

Retail $5T

FRNs

Securitizations $5T

1 Source: Alternative Reference Rates Committee (ARRC)

USD LIBOR Footprint

2 ISDA

IBORs collectively serve as the

benchmark for over US $ 370 trillion

of products worldwide2

BMO has established an IBOR Transition

Office focused on actively contributing to

industry consultations, engaging clients and

strategically coordinating the transition across

our global platform.

Global Reform

3

Unlike other regulatory changes with defined rulemaking – IBOR transition is about changes to market structure and liquidity.

Regulators are asking the market to adapt to the transition before any rules or guidelines are available.

Jurisdictional nuance – some jurisdictions are multi-rate and RFRs will vary by jurisdiction; different administrators have different timelines for

cessation.

Why is this Different than other Regulatory Reforms?

The Interbank Offered Rates have been a crucial element of the global financial services industry for more than 40 years.

Transition working groups have been established in all major jurisdictions with each group selecting their own preferred alternative to their

currency’s IBOR (some jurisdictions are moving faster than others).

The Financial Conduct Authority (FCA) plays a key international role as the regulator of ICE Benchmark Administrator (IBA) which in turn is

LIBOR’s administrator.

All IBORs under FCA’s purview are slated to be replaced by RFRs; local benchmarks like CDOR and EURIBOR are currently poised to be

reformed to comply with the International Organization of Securities Commissions (IOSCO) benchmark standards and exist in parallel with their

respective RFRs until announced otherwise.

Alternative Risk-Free Rates by Jurisdiction

Jurisdiction Old Benchmark RFR Secured/

Unsecured Underlying Asset Publication Date

UK GBP LIBOR SONIA Unsecured Money

Markets/Deposits

April 2016 (Reformed as of April 23, 2018)

US USD LIBOR SOFR Secured Repos Published as of April 3, 2018

Euro Area EURIBOR,

EONIA,

EUR LIBOR

€STR Unsecured Money

Markets/Deposits

Published as of October 2, 2019

SUI CHF LIBOR SARON Secured Repos Published as of August 25, 2009

JPN JPY LIBOR TONAR Unsecured Money Markets Published late 2016

CAN CDOR Enhanced CORRA Secured Repos Published as of June 15, 2020

Background

Industry Work Effort

Transition Timeline

Industry working groups and individual firms are preparing and executing their transition plans and will likely continue to do so into 2022. Key industry work includes:

Q2 ‘21

CCPs to no longer accept

new swap contracts for

clearing with EFFR as PAI

and discounting.

JUNE 15 ‘20

Bank of Canada will take over

the responsibility of publishing

enhanced CORRA.

DEC 31 ‘21

FCA will no longer compel

panel banks to submit

LIBOR quotes.

2020 2021 Past Milestones

DEC 31 ‘21

EMMI to cease publication of

EONIA rates.

€ RFR Working Group

recommends firms introduce

fallback language before Dec.

31, 2021

OCT 16 ‘20

LCH Limited and CME

Group plan to move

SOFR discounting on

all USD denominated

SwapClear contracts.

Q3 ‘20

Forward looking term versions of

SONIA to be available in the loan

market.

By the end of Q3 2020 lenders should

be in a position to offer non-LIBOR

linked products to their customers.

1H ‘20

IBOR fallback rates based

on adjusted RFRs for key

IBORS will be calculated &

published by Bloomberg

2H ‘20

IASB to publish guidance on

hedge accounting treatment

of loans, bonds & derivatives.

AUG 03 ‘20

BoE to publish daily

SONIA

Compounded

Index.

SEPT 30 ‘20

Hardwired fallbacks incorporated in business

loans and student loans.

Develop resource guides to support market

participants’ efforts to develop consumer

education and outreach.

Target cessation for new applications for

close-end residential mortgages using USD

LIBOR and maturing after 2021.

Business and consumer loans technology/

operations vendors to be ready to transact

SOFR.

APR 01 ‘21

BoE will increase

haircuts on

LIBOR-linked pre-

positioned

collateral.

NOV ‘20

FSB to publish report on

LIBOR transition

progress.

JULY 27 ’20

EU central counterparties

(CCPs) have set discounting

switch for cleared EUR

denominated derivatives.

SEPT ’20

Publication of revised 2006 ISDA

Definitions and protocols with new

IBOR fallback provisions.

Q3 ’20

SOFR-based ARMs to be

accepted beginning Q3 2020.

End Q1 ‘21

Cease all new issuance of

sterling LIBOR-referencing loan

products that expire after the end

of 2021.

JUNE 30 ’20

Hardwired fallbacks

incorporated in FRNs,

securitizations, and mortgages.

FRN technology/ operations

vendors to be ready to transact

SOFR.

NOV/DEC ‘20

Hardwired fallbacks

incorporated in derivatives no

later than 4 months after the

amendments to ISDA 2006

Definitions are published.

H1 ‘21

Forward-looking term

SOFR rate to be published.

JAN 1 ‘21

GSEs will no longer

purchase LIBOR-

indexed ARMs.

DEC 31 ‘20

Target for cessation of new use of

USD LIBOR for FRNs.

Securitizations technology/

operations vendors to be ready to

transact SOFR

JUNE 30 ‘21

Target for cessation of new use

of USD LIBOR for business

loans, securitization and

derivatives.

SEPT 30 ‘21

Target for cessation of new

use of USD LIBOR for

CLOs.

4

NOV/DEC ‘20

Earliest UK FCA may announce

the timing and manner of

LIBOR’s discontinuation

5

SOFR Transaction Volume (USD$ in bn as at July 23, 2020)

Source: FRBNY

The Secured Overnight Financing Rate (SOFR) is an overnight, secured reference rate administered by the New York Fed that broadly measures the cost of borrowing cash overnight with U.S. Treasuries as collateral – i.e. the U.S. Treasury Repo Market.

2014 – The Federal Reserve convened the Alternative Reference Rate Committee (ARRC) to identify alternative reference rates to replace USD LIBOR.

June 22, 2017 – The ARRC chose the Secured Overnight Financing Rate (SOFR) as its preferred alternative.

April 2018 – The Federal Reserve began publishing SOFR.

SOFR is a volume-weighted median of three types of repo transactions collateralized by U.S. Treasuries: (1) Tri-Party GC Repo; (2) GCF Repo; and (3) Cleared bilateral repo.

According to the Federal Reserve Bank of New York, over $750 billion of daily transactions are executed in the U.S. Treasury overnight repo market, dwarfing the current volumes underlying LIBOR.

Volumes underlying SOFR are larger than in any other U.S. money market.

SOFR is transaction-based and reflects the cost of secured financing across a variety of market participants. Trading volumes remain strong in times of stress.

Bottom 25% of transactions trimmed to omit specials.

Average Daily Volumes in U.S. Money Markets (USD$ in bn) Source: Federal Reserve, FINRA, DTCC Solutions,

SOFR is from Inception to July 23, 2020

SOFR Introduction

500

700

900

1100

1300

1500

$ b

n

SOFR Transaction Volume

0

200

400

600

800

1000

SOFR Overnightbank

funding rate

Fed Fundsrate

3-monthbills

3-monthLIBOR

3-month AACP

957

197

79 13 0.5 0.34

SOFR is derived from the: (1) Tri-Party GC Repo; (2) GCF Repo; and

(3) Cleared bilateral repo.

Not all repo transactions are created equal, and the rate of the

different transactions can vary. The three sets of source data are

used to compute the transaction-weighted median repo rate which

becomes the day’s SOFR benchmark value.

Volumes have been steadily moving into Tri-Party and away from

GCF since NY Fed made SOFR data public; major shifts could impact

rates.

Since the March 2020 rate cut, the Tri-Party, GCF, and bilateral repo

components of SOFR have averaged 2.17%, 2.18%, and 2.17%,

respectively.

6

Repo Volume Composition SOFR Volume Composition (USD$ in bn as at July 23, 2020)

Implied SOFR Component Rates by Type (as at July 23, 2020)

Implied SOFR Component Rates by Type (as at July 23, 2020)

SOFR Deep-dive

0

200

400

600

800

1000

1200

1400

Jan

-16

Ap

r-16

Jul-1

6

Oct-

16

Jan

-17

Ap

r-17

Jul-1

7

Oct-

17

Jan

-18

Ap

r-18

Jul-1

8

Oct-

18

Jan

-19

Ap

r-19

Jul-1

9

Oct-

19

Jan

-20

Ap

r-20

Jul-2

0

$ b

n

Tri-Party Volumes GCF Volumes Bilateral Volumes

0

0.5

1

1.5

2

2.5

3

3.5

%

TriParty Rate GCF Rate Bilateral Rate

0%

10%

20%

30%

40%

50%

60%

70%

2015 2016 2017 2018 2019 2020

% o

f T

ota

l V

olu

mes

Tri-Party Volumes GCF Volumes Bilateral Volumes

Repo trades traditionally trade below Fed Funds; however recently

SOFR has been trading above Fed Funds.

Futures suggest this should persist through 2021. This is likely caused

by:

An elevated bill supply.

Lowest 25% of transactions are trimmed from the SOFR

calculation to remove specials.

This methodology biases SOFR higher as lowest GC transactions are

omitted.

SOFR effectively becomes the median of the highest 75% of volume-

weighted transactions.

7

SOFR – Effective Fed Funds Spread Source: Bloomberg as at July 23, 2020

1M SOFR Futures vs Fed Fund Futures Source: Bloomberg as at July 23, 2020

Historical SOFR – Effective Fed Funds Spread Source: Bloomberg as at July 23, 2020

September 17, 2019 spread of 295bps has been omitted from the graph due to outlier effects.

SOFR vs Effective Fed Funds

-40

-20

0

20

40

60

80

Oct-

15

Jan

-16

Ap

r-16

Jul-1

6

Oct-

16

Jan

-17

Ap

r-17

Jul-1

7

Oct-

17

Jan

-18

Ap

r-18

Jul-1

8

Oct-

18

Jan

-19

Ap

r-19

Jul-1

9

Oct-

19

Jan

-20

Ap

r-20

Jul-2

0

bp

SOFR-EFFR

-16

-14

-12

-10

-8

-6

-4

-2

0

2

4

3/1

9/2

020

4/2

/202

0

4/1

6/2

020

4/3

0/2

020

5/1

4/2

020

5/2

8/2

020

6/1

1/2

020

6/2

5/2

020

7/9

/202

0

7/2

3/2

020

bp

SOFR - EFFR (Median) SOFR - EFFR (25th Percentile)

0.01

0.03

0.05

0.07

0.09

0.11

Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 Feb-21 Mar-21

%

SOFR Fed Funds

8

Key Differences Between LIBOR and SOFR

Shows 3M SOFR Futures are lower than Eurodollar (3M USD LIBOR).

3M SOFR Futures vs Eurodollars Futures Source: Bloomberg as at July 23, 2020

Overnight and risk-free are desirable qualities for reference rates, but differences from

LIBOR pose challenges for transition:

Hedging funding costs

• LIBOR generally rises in times of market stress but SOFR does not.

Futures suggest that USD LIBOR averages will be approximately 16-24 bps higher

than SOFR; as a result, SOFR requires a credit spread adjustment.

Transitioning existing LIBOR-based contracts (forward-looking rate) to SOFR-based

(backward-looking rates) contracts will be operationally challenging – systems and

operations are set up for forward-looking rates and will need to be modified for

backward-looking rates.

LIBOR vs SOFR During Stress Source: Bloomberg as at July 23, 2020 Challenges Reconciling LIBOR and SOFR

Unsecured rate

Interbank funding market participants

(panel banks)

Consensus-based; depends on expert

judgements

May be prone to the risk of manipulation

Forward-looking rate with a term structure

Built-in credit component based on credit

conditions amongst panel banks

$500 million underlying transactions*

Not durable during stressed market

conditions

*Note this is for 3-month USD LIBOR as it the

most widely used

Secured rate

Broad array of market participants

(multiple industries)

Fully transaction-based

Not subject to same risks of manipulation

Backward-looking overnight rate

Historical credit adjustment relative to

LIBOR needs to be added

$850 billion underlying daily transactions

Historically durable during stressed

market conditions

SOFR USD LIBOR VS

Comparing USD LIBOR to SOFR

-0.1

0

0.1

0.2

0.3

0.4

0.5

Se

p-2

0

Nov-2

0

Jan

-21

Ma

r-21

Ma

y-2

1

Jul-2

1

Se

p-2

1

Nov-2

1

Jan

-22

Ma

r-22

Ma

y-2

2

Jul-2

2

Se

p-2

2

Nov-2

2

Jan

-23

Ma

r-23

Ma

y-2

3

Jul-2

3

Se

p-2

3

Nov-2

3

Jan

-24

Ma

r-24

Ma

y-2

4

%

SOFR Eurodollar

0

20

40

60

80

100

120

140

160

Ap

r-16

Jun

-16

Au

g-1

6

Oct-

16

Dec-1

6

Fe

b-1

7

Ap

r-17

Jun

-17

Au

g-1

7

Oct-

17

Dec-1

7

Fe

b-1

8

Ap

r-18

Jun

-18

Au

g-1

8

Oct-

18

Dec-1

8

Fe

b-1

9

Ap

r-19

Jun

-19

Au

g-1

9

Oct-

19

Dec-1

9

Fe

b-2

0

Ap

r-20

bp

3m Libor-3m SOFR

9

SOFR is volatile on a spot basis – specifically spiking during quarter-ends due to balance sheet management

considerations, however historically as a compounded rate, 3M SOFR is less volatile than 3M USD LIBOR.

Since September 2015, 3M USD LIBOR has been about 30 bps higher on average than 3M compounded SOFR, with

the spread ranging from approximately 11 to 56 bps.

SOFR is not a credit hedge; while LIBOR is not a perfect credit hedge - it generally works for many participants.

The spread is calculated as 3M USD LIBOR as at t-90 days less 3M compounded SOFR in arrears as at t.

Historical Overview of 3M USD LIBOR and SOFR Source: BMO CM

0

10

20

30

40

50

60

0

0.5

1

1.5

2

2.5

3

3.5

Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19

bp

s

%

Spread SOFR SOFR (3m Geo Mean) 3m Libor

Comparing USD LIBOR to SOFR

10

Transitioning from LIBOR to SOFR requires the market to develop in different areas.

New debt linked to SOFR must be issued and the market needs to become liquid

Futures and swaps markets that reference SOFR must grow

Legal contractual language needs to become more robust for both new activities and legacy contracts tied to LIBOR

The ARCC is currently exploring how to build a forward-looking SOFR term rate as part of its transition plan and aims to publish indicative rates

using derivatives. The process requires new futures and swaps to be launched and become sufficiently liquid. Currently, both CME and the

Intercontinental Exchange offer 1M and 3M SOFR futures trading, and the LCH group and CME both have started clearing SOFR swaps

(SOFR OIS, SOFR vs LIBOR Basis Swap, and SOFR vs Fed Funds Basis Swap).

Current proposal suggests segmenting 3-month horizon into regimes separated by FOMC dates, and uses the front 4 1-month SOFR futures

to bootstrap term rate.

However, a methodology incorporating 3-month futures and SOFR swaps could increase flexibility and robustness of the term structure

algorithm.

Current State

Indicative Forward-Looking SOFR Term Rates As at July 15, 2020 Source: Fed

Forward XM: Forward-looking term rates derived from end-of-day SOFR futures prices

Realized XM: Compound average term rates derived from realized daily SOFR rates

Creation of Term SOFR

0

0.5

1

1.5

2

2.5

3

%

FORWARD_1M

FORWARD_3M

FORWARD_6M

REALIZED_1M

REALIZED_3M

REALIZED_6M

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

-

20

40

60

80

100

120

140

160

Years

No

tio

nal $b

n

Bank Non-Bank Financial SSA GSE Average Term

SOFR Market Update SOFR Issuance (in USD$ bn, 1 year period as at July 31,2020); Source: Bloomberg

CME Futures Volumes (As at July 31, 2020); Source: CME

Total Outstanding Issuance by Term (As at July 31, 2020) Source: Bloomberg

11

Market Highlights

July saw USD$ 47B of SOFR notes issued, mostly by

GSEs.

BMO issued USD$ 100 million in SOFR funding.

Total SOFR issuance has been about USD$ 758B

since inception with 538B currently outstanding.

BMO’s Corner

BMO underwrote 13 deals totaling USD $6B:

o L-Bank

o African Development Bank green bond

reopening

o European Bank of Reconstruction

o European Investment Bank bond reopening

o World Bank (IBRD) bond reopening

BMO issued $3.55B of SOFR funding YTD, 7B since

inception.

60

44

30

8 5

33

149

63 67

20

40 47

0

100000

200000

300000

400000

500000

600000

700000

0

10000

20000

30000

40000

50000

60000

70000

July Aug Sep Oct Nov Dec Jan Feb Mar Apr May June July

Op

en

In

tere

st

Ave

rag

e D

ail

y V

olu

me

Average Daily Volume Open Interest

29.6%

39.0%

4.9%

20.0%

5.9% 0.7%

1Yr

2Yr

3Yr

Under 1Yr

Over 5Yr

4Yr

12

While issuers and underwriters are slowly moving toward

consensus on most terms for new issue SOFR-linked bonds, some

discrepancies still exist.

Coupon lockout periods were initially 4 business days but have

since transitioned to 2, evidenced by FNMA and FHLMC’s recent

transactions.

For reset determinations that fall over a weekend, some issuers

have opted to use the prior business day (i.e. Friday) as the

determination date; however, there have been instances where the

determination date is pulled forward to the next business day (i.e.

Monday)—this demonstrates the lack of uniformity in the nascent

market.

Termsheet Language Examples

Exceptions

Bond Terms Specification

Coupon Frequency: Quarterly

Reset Determination: 1 Business Day Prior

Coupon Lockout*: 2 Business Days

Coupon Calculation: Simple Average

General Deal Terms

Term Definition

Reset Frequency

Daily

The SOFR (Secured Overnight Financing Rate) shall be fixed by reference on or about 8:00 a.m. (New York time) on the Federal Reserve Bank

of New York’s Website https://apps.newyorkfed.org/markets/autorates/sofr on each Reset Date within the relevant coupon period for trades made

on the related Determination Date. The first fixing will therefore be the SOFR of the 30 October 2018 published on the Federal Reserve Bank of

New York’s Website 31 October 2018 on or about 8:00 am (New York time)

Fallback provisions to be included in the Final Documentation

Reset Date

Each U.S. Government Securities Business Day: provided, however, that in respect of any interest period, the last [ ] U.S. Government Securities

Business Days of such Interest Period shall be a Suspension Period. During a Suspension Period, the index for each day during that Suspension

Period will be the index value for the Reset Date immediately prior to the first day of such Suspension Period

Determination Date Determination Date means, with respect to any Reset Date, the first U.S. Government Securities Business Day immediately preceding such Reset

Date

Coupon

SOFR + [ ] bps

Since the SOFR will reset daily within each coupon period, coupon payment for each coupon period will be calculated by multiplying the principal

amount of each specified Denomination of the Notes by an accrued interest factor. This accrued interest factor will be computed by totalling the

interest factors calculated for all days in the relevant coupon period. The interest factor for each day within the relevant coupon period will be

computed by dividing the applicable Coupon for that day by the number of days in the year referred to in the Accrual Method

Coupon Fixing On the [ ] U.S. Government Securities Business Day prior to the Coupon Payment Date relating to the relevant coupon period

USD SOFR Deal Mechanics

Appendix 1. SOFR FRN Conventions Matrix

2. Operationalizing SOFR

SOFR FRNs Conventions Matrix

14

Multiple FRNs

2018-2019

Goldman

Sachs FRNs

May 2019

European

Investment Bank

FRNs June 2019;

World Bank FRNs

July 2019

Morgan Stanley

FRNs June

2019; Bank of

America FRNs

July 2019

Standard

Overnight

Index Swap

(OIS)

Averaging

Method

Simple

Averaging

Daily

Compounding

Daily Compounding

Daily

Compounding

Daily

Compounding

Payment

Date

On the interest

period end date1

On the interest

period end

date

On the interest

period end date

2 business days

following the

interest period

end date

2 business

days following

the interest

period end

date

Lookback 1 business day 2 business

days2

5 business days3 No Lookback4 No lookback

Lockout Generally 2

business days

None None Only applicable

on final interest: 2

business days

None

Day Count

Convention

Actual/360 Actual/360

Actual/360

Actual/360

Actual/360

Key Terms

Averaging Method: An average

of daily SOFR rates referenced in

FRNs can either be calculated by

using a simple average or

compounding (geometric

average)

Methods to achieve cash flow

certainty before an interest

payment is due:

•Lookback: The SOFR rate

used to calculate a rate for

each day in an interest period

is based on the SOFR that

represents repo transactions

on a prior day

•Lockout: One of the daily

SOFR rates is “suspended”

meaning that it is repeated for

several days, typically at the

end of an interest period

•Payment Date Delay:

Payment dates may be

delayed for several days after

an interest period concludes

1. This chart assumes interest generally accrues from, and including, an “interest period end date” to, but excluding, the next “interest period end date.”

2. The GS FRN “lookback” applied each daily SOFR rate to the compounding formula based on the observation period date. With a 2-day shift, the observation period starts and ends two days prior to interest period

start and end dates. This formulation can be used to align with hedges.

3. The EIB FRN “lookback” applied each daily SOFR rate to the compounding formula based on the applicable interest period date . This is the standard convention in the SONIA FRN market and a mismatch with

swaps may occur around holidays but is minimal when using a 5-day lookback.

4. “No lookback” in this chart applies the daily SOFR rate representing repo trading on such day that will be published the fo llowing U.S. business day. A “no lookback” structure requires an additional convention for

secondary market trading (e.g. a lockout).

Source: ARRC

Operationalizing SOFR

15

How Does It Work? Business Implications Technology Implications Process

Forward Looking SOFR

Term Rate

(currently in progress and is

the industry preference)

Similar to current

LIBOR

Minimal change

Cost of funds is known

Hedge ability, convention

differs from current

derivatives conventions

Minimal change

Referencing new rate

Similar functionality to

current LIBOR accrual

Minimal change

Potential change in interest

periods

SOFR Compounded in

Arrears

(ISDA’s method for

derivatives; an option for cash

products)

SOFR is compounded

daily. The observation

period is the same as

the interest period;

may require lockout

Significant change

Accrual

Cash flow changes

Cost of funds is known later

Most hedgeable / aligns with

current derivatives

conventions

Significant change

Referencing new rate

Accrual calculations

Compounding period /

lockout / look back

Primary / secondary

delayed compensation

Changes to risk / finance

models

Significant change

Documentation changes

Closing / servicing process

moving from forward to

backward looking process

Increase in communications

and notifications amongst

parties

SOFR Compounded in

Advance

(an option for cash products)

SOFR is compounded

daily but the

observation period is

prior to the interest

period; rate is known

in advance

Minimal change

Cost of funds is known

Hedge ability, convention

differs from current

derivatives conventions

Minimal change

Referencing new rate

Similar functionality to

current LIBOR accrual

Minimal change

Potential change in interest

periods

Daily Simple Average SOFR

in Arrears

(an option for cash products)

Daily SOFR is

averaged over the

interest calculation

period

Minimal change

Cost of funds is known later

Minimal change

Referencing new rate

Similar functionality to

current PRIME / LIBOR

accrual

Moderate change

Documentation changes

Interest payment dates

Increase in communications

and notifications amongst loan

parties

Closing / servicing process

moving from forward to

backward looking process

Proposed Interest Calculation

Source: Alternative Reference Rate Committee

This material has been prepared with the assistance of employees of Bank of Montreal (“BMO”) who are involved in derivatives sales and marketing efforts.

We are not soliciting any specific action based on this material. It is for the general information of our clients. It does not constitute a recommendation or a suggestion that any investment or strategy referenced herein may be suitable for you. It does not take into account the particular investment objectives, financial conditions, or needs of individual clients.

Nothing in this material constitutes investment, legal, accounting or tax advice, or a representation that any investment or strategy is suitable or appropriate to your unique circumstances, or otherwise constitutes an opinion or a recommendation to you. BMO is not providing advice regarding the value or advisability of trading in commodity interests, including futures contracts and commodity options or any other activity which would cause BMO or any of its affiliates to be considered a commodity trading advisor under the U.S. Commodity Exchange Act. BMO is not undertaking to act as a swap advisor to you or in your best interests and you, to the extent applicable, will rely solely on advice from your qualified independent representative in making hedging or trading decisions. This material is not to be relied upon in substitution for the exercise of independent judgment. Any recipient of these materials should conduct its own independent analysis of the matters referred to herein, together with its qualified independent representative, if applicable. Any discussion of tax matters in these materials (i) is not intended to be used, and cannot be used or relied upon, for the purposes of avoiding any tax penalties and (ii) may have been written in connection with the “promotion or marketing” of the transaction or matter described herein. Accordingly, the recipient should seek advice based on its particular circumstances from its own independent financial, tax, legal, accounting and other professional advisors (including, without limitation, its qualified independent representative, if applicable).

These materials are confidential and proprietary to, and may not be reproduced, disseminated or referred to, in whole or in part without the prior consent of BMO. Information presented in this material has been obtained or derived from sources believed by BMO to be reliable, but BMO does not guarantee their accuracy or completeness. BMO assumes no responsibility for verification of the information in these materials, no representation or warranty is made as to the accuracy or completeness of such information and BMO accepts no liability whatsoever for any loss arising from any use of, or reliance on, these materials. BMO assumes no obligation to correct or update these materials. These materials do not contain all information that may be required to evaluate any transaction or matter and information may be available to BMO and/or its affiliates that is not reflected herein.

BMO and/or its affiliates may make a market or deal as principal in the products (including, without limitation, any commodities, securities or other financial instruments) referenced herein. BMO, its affiliates, and/or their respective shareholders, directors, officers and/or employees may from time to time have long or short positions in any such products (including, without limitation, commodities, securities or other financial instruments).

BMO Capital Markets is a trade name used by BMO Financial Group for the wholesale banking businesses of Bank of Montreal, BMO Harris Bank N.A. and Bank of Montreal Ireland p.l.c., and the institutional broker dealer businesses of BMO Capital Markets Corp., BMO Nesbitt Burns Trading Corp. S.A., BMO Nesbitt Burns Securities Limited in the U.S., BMO Nesbitt Burns Inc. in Canada and Asia, BMO Nesbitt Burns Ltée/Ltd. in Canada, BMO Capital Markets Limited in Europe and Australia, BMO Advisors Private Limited in India and Bank of Montreal (China) Co. Ltd. in China.

® Registered trademark of Bank of Montreal in the United States, Canada and elsewhere.

TO U.K./E.U. RESIDENTS: In the UK, Bank of Montreal London branch is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority (“FCA”) and the Prudential Regulation Authority and BMO Capital Markets Limited is authorized and regulated by the FCA. The contents hereof are intended solely for the use of, and may only be issued or passed on to, persons who have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2001 or to investors in any E.U. Member State, other than persons meeting the criteria for classification as professional client or eligible counterparty under the Markets in Financial Instruments Directive 2004/39/EC (and relevant implementing legislation in such E.U. Member State). Any U.K. person wishing to effect transactions in any security discussed herein should do so through Bank of Montreal, London Branch or BMO Capital Markets Limited; any person in the E.U. wishing to effect transactions in any security discussed herein should do so through BMO Capital Markets Limited.

TO PRC RESIDENTS: This material does not constitute an offer to sell or the solicitation of an offer to buy any financial products in the People’s Republic of China (excluding Hong Kong, Macau and Taiwan, the “PRC”). BMO and its affiliates do not represent that this material may be lawfully distributed, or that any financial products may be lawfully offered, in compliance with any applicable registration or other requirements in the PRC, or pursuant to an exemption available thereunder, or assume any responsibility for facilitating any such distribution or offering. This material may not be distributed or published in the PRC, except under circumstances that will result in compliance with any applicable laws and regulations.

TO HONG KONG RESIDENTS: This material has not been reviewed or approved by any regulatory authority in Hong Kong. Accordingly the material must not be issued, circulated or distributed in Hong Kong other than (1) except for "structured products" as defined in the Securities and Futures Ordinance, in circumstances which do not constitute it as a “Prospectus” as defined in the Companies Ordinance or which do not constitute an offer to the public within the meaning of that Ordinance, or (2) to professional investors as defined in the Securities and Futures Ordinance and the Securities and Futures (Professional Investor) Rules made thereunder. Unless permitted by the securities laws of Hong Kong, no person may issue in Hong Kong, or have in its possession for issue in Hong Kong this material or any other advertisement, invitation or document relating to the products other than to a professional investor as defined the Securities and Futures Ordinance and the Securities and Futures (Professional Investor) Rules.

TO SINGAPORE RESIDENTS: This document has not been registered as a prospectus with the Monetary Authority of Singapore and the material does not constitute an offer or sale, solicitation or invitation for subscription or purchase of any shares or financial products in Singapore. Accordingly, BMO and its affiliates do not represent that this document and any other materials produced in connection therewith may lawfully be circulated or distributed, whether directly or indirectly, to persons in Singapore. This document and the material do not and are not intended to constitute the provision of financial advisory services, whether directly or indirectly, to persons in Singapore.

TO THAI RESIDENTS: The contents hereof are intended solely for the use of persons qualified as Institutional Investors according to Notification of the Securities and Exchange Commission No. GorKor. 11/2547 Re: Characteristics of Advice which are not deemed as Conducting Derivatives Advisory Services dated 23 January 2004 (as amended). BMO and its affiliates do not represent that the material may be lawfully distributed, or that any financial products may be lawfully offered, in compliance with any regulatory requirements in Thailand, or pursuant to an exemption available under any applicable laws and regulations.

TO MALAYSIAN RESIDENTS: The Information contained herein is information which is publicly available. This report and the Information contained herein do not constitute nor should they be construed as an offer to sell or buy, or an inducement or solicitation of an offer to sell or buy, or a proposal in respect of, or a dealing in, any securities, currencies, derivatives or any other financial products (“financial products”) in Malaysia. Bank of Montreal and its affiliates do not represent that the Information may be lawfully distributed, or that any financial products may be lawfully offered or dealt with, in compliance with any applicable registration or other requirements in Malaysia, or pursuant to an exemption available thereunder, or assume any responsibility for facilitating any such distribution, offering or dealing in such financial instruments.

TO KOREAN RESIDENTS: This material is not provided to make a recommendation for specific Korean residents to enter into a contract for trading financial investment instruments, for investment advising, for discretionary investment, or for a trust, nor does it constitute advertisement of any financial business or financial investment instruments towards Korean residents. The material is not provided as advice on the value of financial investment instruments or any investment decision for specific Korean residents. The provision of the material does not constitute engaging in the foreign exchange business or foreign exchange brokerage business regulated under the Foreign Exchange Transactions Act of Korea.

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TO INDONESIAN RESIDENTS: No registration statement has been filed with the Financial Services Authority (Otoritas Jasa Keuangan - OJK) and no information contained herein should be considered as an offer to sell or the solicitation of an offer to buy any financial products in a manner which constitutes a public offering under the Indonesian capital market laws and regulations. BMO and its affiliates do not represent that the Information may be lawfully distributed, or that any financial products may be lawfully offered, in compliance with any applicable registration or other requirements in Indonesia, or pursuant to an exemption available thereunder, or assume any responsibility for facilitating any such distribution or offering. You are advised to exercise caution in relation to the Information contained herein. If you are in doubt about any of the content of these documents, you should obtain independent professional advice.

TO PHILIPPINE RESIDENTS: This Information is intended for distribution only to “qualified buyers” as defined under in Section 10 (l) of the Securities Regulation Code of the Philippines. The contents hereof are not intended for the use of and may not be issued or passed on to retail clients.

TO VIETNAMESE RESIDENTS: This document is not a securities offering document and is not required to be registered with any relevant authorities of Vietnam. The contents hereof are intended solely for the use of, and may only be passed on to, persons with whom BMO has had agreement on provision of the Information. The Information is not provided as advice on the value of financial investment instruments, to make a recommendation for specific Vietnamese residents to enter into a contract for trading financial investment instruments, for money broking, for asset management, for settlement and clearing services or for a trust , nor does it constitute advertisement of any financial business or financial investment instruments towards Vietnamese residents . BMO and its affiliates do not represent that the Information may be lawfully imported, distributed, or that any financial products may be lawfully offered, in Vietnam, in compliance with applicable laws of Vietnam, and do not assume any responsibility for facilitating any import, distribution or offering thereof. The Information is only for private use of recipients and may not be reproduced, distributed or published in Vietnam in any form, except under circumstances that will result in compliance with applicable laws of Vietnam.

In Asia, Bank of Montreal is licensed to conduct banking and financial services in Hong Kong and Singapore. Certain products and services referred to in this document are designed specifically for certain categories of investors in a number of different countries and regions. Such products and services would only be offered to these investors in those countries and regions in accordance with applicable laws and regulations. The Information is directed only at persons in jurisdictions where access to and use of such information is lawful.

™ - “BMO (M-bar roundel symbol) Capital Markets” is a trade-mark of Bank of Montreal, used under licence.

Disclaimer