Quantifi, a provider of risk, analytics and trading solutions, recently hosted a webinar on ‘Navigating the IBOR Transition’. After the webinar, delegates were invited to take part in a survey about how prepared their firms are for the transition and the key challenges and activities they will be addressing ahead of implementing the new risk free rates.
The transition away from IBOR represents one of the biggest challenges facing financial services firms and will demand a significant transformational effort from market-infrastructure providers, regulators, and buy/sell-side firms.
Key findings from the survey:
- Though 59% of firms have a formal transition plan, a significant number of firms (41%) have made less progress and remain largely unprepared.
- Many individuals highlighted that their firms’ existing systems are limited when it comes to much of the heavy lifting required for the transition including, modelling (47%), reporting (13%), risk (14%) and profitability analytics (18%).
- Regulatory uncertainty (25%), Operations and technology upgrades (19%) were selected as the two largest challenges of the transition.
- Only 18% of individuals surveyed expect to complete IBOR transition efforts by March 2021.
“Of the considerable efforts required in exposure, risk, and model management, updating existing workflows, and technology will be a huge lift for most firms. A large part of the overall effort, in getting to through the transition, will be upgrading, replacing, or re-architecting existing systems to work in the new reference rate regime, as well as managing the long tail of existing, long tenor (L)IBOR positions,” comments Brad Bailey, Capital Markets, Research Director, Celent.
Quantifi can help clients navigate the LIBOR transition by providing support for data management and the construction and calibration for LIBOR replacement curves including ESTR and SOFR curves. Curves can be calibrated to a variety of market instruments including SOFR futures. Quantifi also supports the modelling of basis curves. An interest rate curve can be constructed as a spread over another curve. This gives clients the flexibility to model these new curves in a variety of ways. Quantifi’s scenario and what-if capabilities allow clients to analyse the impact of switching a trade from an old reference rate to a new reference rate, which can support clients in analysing legacy trades and negotiating new terms with their counterparties.
“The impact of the IBOR reforms are wide-ranging and firms need to be prepared for the transition,” comments Dmitry Pugachevsky, Director of Research, Quantifi “From a technology perspective, many firms will be upgrading, replacing, or re-architecting existing systems to support post-IBOR marketplace. Operational readiness can be ensured by leveraging third party technology and infrastructure providers that have the capacity to support the transition process,” continues Dmitry.