Deadlines for migrating from IBOR to risk-free rates are getting closer. Suddenly, the end of 2021 feels just around the corner. Few firms can afford to spend scarce resources on a labour-intensive compliance project, especially under our current circumstances of uncertainty and disruption. Fewer still can afford to make mistakes, then spend even more time and money in haste, risking failure to be ready.
The task of manually migrating to risk-free rates is not necessarily complex, but it can be challenging to implement efficiently – especially if a lot of counterparties and instrument types are involved. Firms that are looking to navigate this transition with ease and within budget would be best served working with a firm which has actual implementation experience.
To ensure clients can convert impacted transactions with the maximum efficiency and minimum disruption, SkySparc offers a comprehensive, flexible and highly automated solution.
Developed to support an extensive IBOR migration project by the European Investment Bank (EIB), SkySparc’s solution has been tested at scale and has demonstrated its ability to seamlessly convert a wide range of instruments. As a proof-of-concept, it successfully supported the migration of diverse portfolios of loans and swaps, often subject to case-by-case bilateral negotiations with counterparties, in multiple major global currencies.
SkySparc’s solution is based on a road-tested methodology and the proven testing and automation capabilities of OmniFi, handling the required functionality changes across all WSS modules, eg TRM, CLM and ACM. It has the flexibility to be both a comprehensive turnkey solution and a more tailored response to precise needs and circumstances, leveraging the deep expertise and unrivalled experience of SkySparc’s consulting team.
With so many positions impacted by the IBOR migration, EIB needed a highly automated, scalable and flexible solution. As a long-term client, we already knew EIB’s processes intimately, but the success of the project also required OmniFi to handle a range of conversion protocols smoothly and efficiently.
Lars Schröder, Senior Engagement Manager, SkySparc
Analysis to define scope of migration project, covering the types of instruments, positions and interfaces impacted, plus new configurations and technical enhancements required.
Pre-migration, WSS users may need to upgrade to the new patch issued to enable IBOR migration, or hotfixes to set the new yield curves and the conventions needed to calculate new fixing rates. SkySparc will provide the technical assistance to install and test the new patch, using our standard methodology, as well as using our in-depth experience to implement hotfixes and CSDs to WSS.
SkySparc will configure and test the functionality supporting the new rate, e.g. static data, reference rates and yield curves, and managing the connections to the required market data feeds.
Fully automated by OmniFi, the transition process involves identification and extraction of in-scope transactions, conversion to the new risk-free rate fixing process via an instrument-appropriate methodology (if necessary tweaking/updating to link back to existing records), then saving, testing and validation, for example to ensure consistency with existing cash flow calculations. The transition can be conducted on a ‘big bang’ basis or bilaterally in consultation with counterparties.
Larger institutions are well under way with their IBOR migration projects, working with counterparties to complete conversions well ahead of the end-2021 deadline. 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”.
Whether working bilaterally or taking a standardized approach informed by ISDA’s recently issued IBOR Supplements and Fallbacks Protocol, SkySparc’s highly automated solution means that a more proactive, low-maintenance and risk-free migration is now possible to a wider range of firms.
The extensive nature of this pilot project means that SkySparc’s IBOR migration solution has been rigorously tested in a range of circumstances. We are confident that our methodology can support the diverse pathways to risk-free rates chosen by clients.
Magnus Jansson, Senior Manager, SkySparc