In a matter of months, one of the most important Interbank Offered Rates used in global financial markets, the London Interbank Offered Rate (LIBOR), will be discontinued. In migrating to the more robust and reliable Risk-Free Rates (RFRs) few firms can afford to spend resources on a labor-intensive compliance project, nor risk problems further down the line by implementing inefficient, ‘sticking plaster’ solutions to get over the compliance finishing line.
LIBOR is a key interest rate benchmark across a range of financial products including derivatives, securities, and loans; migrating from it by 31 December 2021 will be a significant exercise. Transition plans need to be accelerated and finalized. While manually migrating to risk-free rates is not necessarily complex, it can be challenging to implement efficiently – especially if multiple counterparties and instrument types are involved.
Firms don’t have to approach this migration alone; by partnering with a firm that has a proven track record of implementation and that understands MX.3, firms can accomplish transition with ease, within budget and on time.
SkySparc offers a comprehensive methodology to facilitate migration readiness and accelerate the final phases of testing. Our consulting team analyzed the migration of a diverse portfolio of hedging derivatives and cash instruments (loans and bonds), at different financial institutions using MX.3. The analysis found that depending on the instrument variations, migration to RFRs was often subject to case-by-case, bilateral negotiations with counterparties.
Our team of experts can handle the required functionality changes across all MX.3 modules including trade capture, versioning, static data, and risk propagation. We can also assist in adapting the connections to external systems such as market data feeds, electronic trades, and reporting distribution systems.
SkySparc’s expertise can be leveraged to assist in testing and validation, for example, to ensure consistency within value transfer and underlying risk across the business functions.
With the IBOR finish line nearing, we can help to accelerate the migration to new reference rate or fallback rates. SkySparc has the expertise to dynamically identify eligible counterparties and instrument types prior to the cessation date. Our team can help assess proactively and preview the financial impacts along with the operational implications of transition. In some circumstances, different approaches will be required to migrate specific cases, which is why we leverage our various experiences and expertise in MX.3 to provide our clients with the optimal methodology for them.
Khaled Hammar, Expert, SkySparc
Larger institutions are under way with their IBOR migration projects, working with counterparties to complete conversions well ahead of the end-2021 deadline. Now is the time for all firms to ensure their transition plans are finalized and ready to implement. Recently issuing its global transition roadmap, the Financial Stability Board recommended that all firms, regardless of size, take a similarly prompt approach, admitting that transition “requires significant commitment and sustained effort from both financial and non-financial institutions”. Organizations should have an active transition plan and transition team – which could include third-party expert partners – in place to tackle the challenges ahead.
Whether working bilaterally or taking a standardized approach informed by ISDA’s recently issued IBOR Supplements and Fallbacks Protocol, SkySparc’s highly experienced consultancy team means that a more proactive, low-maintenance and risk-free migration is now possible to a wider range of firms.