IBOR Global Benchmark Survey Transition Roadmap
The International Swaps and Derivatives Association, Inc. (ISDA), the Association of Financial Markets in Europe (AFME), International Capital Market Association (ICMA), as well as the Securities Industry and Financial Markets Association (SIFMA) and its asset management group (SIFMA AMG) (the “Trade Associations”), have joined together to publish this Roadmap in response to this call to action. By combining their resources the Trade Associations can help the regulators and market participants who are leading the global transition initiatives reach parts of the market which have yet to fully engage in the process. The Roadmap aims to raise awareness of some of the challenges to be solved as part of the transition plan and provide a central resource of information for benchmark transition across market sectors.
See also:
Press Release – ISDA, AFME, ICMA, SIFMA and SIFMA AMG Launch Benchmark Transition Roadmap
Excerpt
Introduction
The future of IBORs
• Interbank offered rates (IBORs) play a central role in financial markets and act as reference rates to hundreds of trillions of dollars in notional of derivatives and trillions of dollars in bonds, loans, securitizations and deposits
• The dependence on IBORs by all sectors of financial markets is changing, however. Driven by benchmark reform initiatives that have recommended reducing the reliance on IBORs, work has been undertaken, or is underway, in multiple jurisdictions to select alternative nearly risk-free rates (alternative RFRs) and to plan for a transition to those rates
Identifying the challenges of transition
• Identifying the challenges of transition is the first step in resolving them. In his speech to the Bank of England roundtable of sterling risk-free reference rates in July 2017, Chris Salmon, executive director, markets at the Bank of England said: “We do not underestimate the complexity of reducing the financial system’s LIBOR dependency. We are at the beginning of the process, and at this early stage the challenges are not all clearly in focus. That is why the engagement, help and support of the wider community of users of sterling interest rate benchmarks – issuers, investors, banks, as well as dealers – will be essential. The Working Group needs your help to identify the impediments to transition as you see them – and, equally, to identify where
there are opportunities
IBOR Global Benchmark Transition Roadmap
• The International Swaps and Derivatives Association, Inc. (ISDA), the Association of Financial Markets in Europe (AFME), International Capital Market Association (ICMA), as well as the Securities Industry and Financial Markets Association (SIFMA) and its asset management group (SIFMA AMG) (the “Trade Associations”), have joined together to publish this Roadmap in response to this call to action. By combining their resources the Trade Associations can help the regulators and market participants who are leading the global transition initiatives reach parts of the market which have yet to fully engage in the process
• The Roadmap aims to raise awareness of some of the challenges to be solved as part of the transition plan and provide a central resource of information for benchmark transition across market sectors
The need to transition from IBORs to alternative RFRs
• A lack of robustness, due to shrinking underlying markets, in certain key IBORs, coupled with the large volume of financial transactions that references these rates, has resulted in systemic risk concerns
• The minimal number of transactions in the unsecured interbank funding market means that submissions by panel banks are largely based upon judgment (as opposed to transactions)
• In the face of concerns regarding potential liabilities associated with judgment-based submissions, panel banks have become significantly less willing to submit. The EURIBOR panel of submitting banks, for example, has fallen from 43 to 20 since 2013, and some banks have stopped submitting to LIBOR panels for certain currencies
• Andrew Bailey’s announcement last year that the UK’s Financial Conduct Authority (FCA) would no longer persuade or compel
banks to make LIBOR submissions from the end of 2021 has raised concerns about the availability of LIBOR from that date