IBOR Transition & Market Risk Management

Delivering IBOR transition services and regulatory risk management

The termination of Interbank Offered Rates (IBORs) will result in major transitional changes across a wide range of financial products and markets, requiring considerable strategic risk management – from modifying risk profiles and models to negotiating an ever evolving regulatory landscape.

Brickendon assists worldwide institutions in preparing for the impending switch from Interbank Offered Rates (IBORs) to Alternate Reference Rates (ARRs) 

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IBOR Transition Services

Risk Management in IBOR transition

Timeline

Currency IBOR Risk Free Rate (RFR) Transition Status
Sterling (GBP)
GBP LIBOR
Sterling Overnight Index Average (SONIA).

Transition to SONIA on 31 December 2021.

Provision of Synthetic GBP LIBOR until end 2022 (likely).

Euro (EUR)

Euro Overnight
Index Average (EONIA)
& EUR LIBOR

Euro Short-Term Rate (€STR).
Transition to €STR on 31 December 2021
Euro (EUR)

Euro Interbank
Offered Rate (EURIBOR)

Euro Short-Term Rate (€STR).

EURIBOR methodology was reformed in 2019

and will not be transitioned at this time.

Swiss Franc (CHF)
CHF LIBOR
Swiss Average Rate Overnight (SARON).
Transition to SARON on 31 December 2021.
Japanese Yen (JPY)

JPY LIBOR, Tokyo
Interbank Offered Rate
(TIBOR) and European
TIBOR

Tokyo Overnight Average Rate (TONA).

Transition to TONA on 31 December 2021.

Provision of Synthetic JPY LIBOR until end 2022.

US Dollar (USD)
USD LIBOR
Secured Overnight Financing Rate (SOFR).

Transition to SOFR.

US Dollar LIBOR 1-week and 2-month settings ceased
on 31 December 2021

Remaining USD tenors (Overnight, 1-month, 3-month,
6-month and 12-month) will cease on 30 June 2023.

Transition work
to be done

Canadian Dollar (CAD)
Canadian Dollar Offered Rate (CDOR)

An updated version of the Canadian Overnight
Repo Rate Average (CORRA).

Transition to CORRA.

Publication of the 6 and 12 month CDOR tenors ceased
in May 2021.

Remaining CDOR tenors (1, 2 and 3 month) will cease
to be published by RBSL after 28 June 2024.

Transition work
to be done

Singapore (SGD)

Singapore Interbank Offered Rate (SIBOR)
& the Singapore Swap Offered Rate (SOR)

Singapore Overnight Rate Average (SORA)

Transition to SORA.

Facilitated cutover 31 October 2022 to 31 December 2022

SOR ceases on 30 June 2023

SIBOR ceases 31 December 2024

Transition work
to be done

$IBOR Readiness (@ June 2022)

Having successfully negotiated the non-USD transition is there anything to be concerned about with a year to go until the cessation of USD LIBOR?

Clearly for most global organisations the USD volumes will be a major step up, so it’s time to reflect on their preparations and whether higher volumes will cause any pain.

Client outreach activities, including readiness for IBOR transition, should be well underway, and relationship managers should be used to explaining the options to both protocol adherents and to those looking to restructure.

Fallback Models & CCP Transitions

Fallback models may need to be revisited to incorporate the additional products found in the USD market. In addition, close attention will need to be paid to the performance hit of processing the additional USD volumes, internal and external. Front Office and Risk teams should be made aware of likely impacts to P&L resulting from LIBOR and RFR valuation differences.

CCP transitions will be planned from the autumn (2022), with member activities kicking off in early 2023. We should anticipate a similar plan to that of the non-USD transitions, with an early conversion of  basis swaps into vanilla equivalents followed by the formal transition in late Q2 23. Given the larger volumes organisations should be ready for a longer processing window and a more significant impact on reportable notionals due to the use of overlays (LCH) and the basis swap splits.

A key impact on organisations in the non-USD transition was the disruption to hedge relationships, and this will be exaggerated by the larger USD volumes.

Decisions should be made on transitioning EuroDollar futures/options ahead of the transition by the exchanges towards the end on Q2 23.

Financial Impacts and Implementation considerations

Many organisation may consider leaving preparations until 2023. We would advise against this as the points of congestions are likely to be significant.  Instead we would recommend bringing key activities into Q3 22:

  • Client outreach should be underway already. Potentially lengthy negotiations with uncertain clients should be looking to conclude in 2022 where possible.
  • Ensure compression cycles are up to date, at a minimum CCP solo compression cycles. This will reduce the volumes to be processed during the CCP go-live weekend, but will also reduce the maintenance charges to be leveraged by the CCPs.
  • Identify where the fallback cannot be applied and restructure with clients.
  • Address issues discovered during the non-USD transitions, notably in operations and trade reporting where SEC/CFTC reporting requirements have yet to be confirmed. Maintaining manual workarounds through the USD transition to SOFR will significantly increase operational risks.

Following the cessation of USD LIBOR on 30th June 2023 and the final migration to SOFR, OSFI and RBSL have confirmed that the Canadian CDOR will formally cease on 28th June 2024. This will largely complete the transitions from LIBOR.

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