Find out how IBOR transition has a wide-reaching impact including business processes, functions, technology and multiple asset classes. Author: Eveline Hunziker
How are my products impacted?
Swiss market participants expect that Interbank Offered Rate (IBOR) transition will impact multiple asset classes with attention focused on derivatives and loan instruments.
Indeed, OTC and Exchange Traded Derivatives represent more than US$300 trillion (80%) of products referencing IBORs. The high-volume challenge in derivatives markets is slightly mitigated by the standardized nature of the industry documentation, the sophistication of the market participants and the availability of industry solutions being developed by the International Swaps and Derivatives Association, such as backward-looking protocols.
On the other hand, in the less-standardized cash markets, the transition will require bilateral treatment and client outreach and education. At present, it is expected that the transition to Alternative Reference Rates (ARR) will cause significant operational disruption for the syndicated loan market.
The industry templates facility agreements are based on LIBOR published at 11:00 London time for a forward-looking period, but loan systems are not set up to process and calculate interest based on different publication times (regarding currency) and overnight rates. Therefore, the industry considers that term rate structures of ARRs are needed to enable the transition of cash markets.
What are the major transition impacts?