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Joined: May 6th, 2009, 11:08 am

LIBOR transition

October 25th, 2020, 11:55 pm

Some of you probably know, the FSB has recently issued a road map for LIBOR transition (October 16):

https://www.fsb.org/wp-content/uploads/P161020-1.pdf

Obviously this is after many months if not a few years of consultations. But is the industry really ready for it?

Doing research now on existing solutions and possible new products to help handle the near-term issues.
 
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RiskUser
Posts: 12
Joined: July 19th, 2006, 4:30 pm

Re: LIBOR transition

December 27th, 2020, 11:09 am

Some of you probably know, the FSB has recently issued a road map for LIBOR transition (October 16):

https://www.fsb.org/wp-content/uploads/P161020-1.pdf

Obviously this is after many months if not a few years of consultations. But is the industry really ready for it?

Doing research now on existing solutions and possible new products to help handle the near-term issues.

I don't believe so. The ISDA fallback methodology is exceptionally complex to implement e.g. use of the most recent fixing, the impact of the discontinued rates maturity provision on tenor by tenor cessation and not to mention the combination of these two issues on stub periods. This all then gets bundled into SGD SOR and THB THBFIX as they are a function of USD LIBOR.....I very much doubt that third party software has been fully developed / tested to capture all the edge cases.

One thing we know for certain is that CAD CDOR 6M and 12M trades will fall back in May 2021 so people had better get their skates on and either implement the fallback methodology or trade out in favor for CAD CORRA or CAD CDOR 3M.
 
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ikicker
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Joined: June 8th, 2011, 12:19 am

Re: LIBOR transition

January 25th, 2021, 5:07 pm

Some of you probably know, the FSB has recently issued a road map for LIBOR transition (October 16):

https://www.fsb.org/wp-content/uploads/P161020-1.pdf

Obviously this is after many months if not a few years of consultations. But is the industry really ready for it?

Doing research now on existing solutions and possible new products to help handle the near-term issues.
I know that here in the US they are switching to SOFR... That transition has been a long time coming with a lot of steps taken to advance it. They don’t line up perfectly but similar numbers for an index.
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bearish
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Joined: February 3rd, 2011, 2:19 pm

Re: LIBOR transition

January 26th, 2021, 12:16 am

I think it might get messy. The optimists say it’s another Y2K, the pessimists liken it to Brexit. The problem with the crystal clear solutions in some parts of the market (like CME and LCH cleared vanilla swaps) is that these positions are sometimes hedges for trades that, if resolved at all, may well be resolved in a very different way. So, probably not a bad field for contract lawyers for the next decade or two.
 
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ikicker
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Joined: June 8th, 2011, 12:19 am

Re: LIBOR transition

August 5th, 2021, 12:01 am

Well, it looks like it’s July and people are still using LIBOR. I first heard about this in 2018 or 2019. I guess it’s going to take a long time before we start seeing alternative interest rate standards to LIBOR. I remember when the rigging scandal broke out. What year was that again?
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Undergraduate: accounting, finance, information systems; Graduate: MBA/finance; Graduate certificates: data science, applied statistics, advanced valuation; PhD candidate - data science

Blog: Www.ThinkerTinkerSolutions.com
 
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Re: LIBOR transition

August 5th, 2021, 12:48 am

2012. But the misbehavior is believed to have dated back to the early 1990s.

The whole thing is reaching the level of mythology at this point:

The Twelve, nay, The Thirteen Labors of Hercules

1) Slay the Nemean lion.
2) Slay the nine-headed Lernaean Hydra.
3) Capture the Ceryneian Hind.
4) Capture the Erymanthian Boar.
5) Clean the Augean stables in a single day.
6) Slay the Stymphalian birds.
7) Capture the Cretan Bull.
8) Steal the Mares of Diomedes.
9) Obtain the girdle of Hippolyta, queen of the Amazons.
10) Obtain the cattle of the three-bodied giant Geryon.
11) Steal three of the golden apples of the Hesperides.
12) Capture and bring back Cerberus.
13) Develop smooth LIBOR transition plan and implement it globally (Pan-Gaia).
 
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bearish
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Joined: February 3rd, 2011, 2:19 pm

Re: LIBOR transition

August 5th, 2021, 2:08 am

Well, it looks like it’s July and people are still using LIBOR. I first heard about this in 2018 or 2019. I guess it’s going to take a long time before we start seeing alternative interest rate standards to LIBOR. I remember when the rigging scandal broke out. What year was that again?
Hmm, on my calendar it’s been August for several days now, but I otherwise agree with your sentiment. SOFR is just an awkward choice for a replacement rate, since it is likely to be negatively correlated with bank funding costs during periods of stress. But, this is probably one of these correlation equilibrium stories where it is ultimately better to agree on a bad solution than to disagree and not reach a solution at all. We shall see. The stables definitely need a river or something to clean out the muck…