Reform of Interest Rate Benchmarks: Transition to a World without IBORs

Monday, October 14

09.00 - 09.10 Welcome and Introduction

09.10 - 12.30

IBOR and its replacement 'Risk-Free Rates' (RFRs)

  • IBOR
    • What was the original purpose of IBOR?
    • How is it set?
    • What went wrong?
      • Rigging scandal
      • Transaction drought
  • The necessity for replacement
    • Would a synthetic IBOR work?
      • How might it be calculated?
    • What problems should a replacement rate fix?
    • The regulatory pressure for replacement
      • UK FCA position on LIBOR
      • European Benchmarks Regulation (BMR)
      • US Alternative Reference Rates Committee (ARRC)
    • What regulatory tests does a new reference rate need to pass?
    • Can IBOR be replaced exactly?
      • Compromises necessary for replacement rate to be widely used
      • What happens to the much-used IBOR-OIS measure?
  • The regulatory-favoured RFRs
    • What are the chosen RFRs in each major currency?
      • SOFR (USD), ESTER (EUR), SONIA (GBP), SARON (CHF), TONAR (JPY)
  • Description of each RFR
    • Differences and similarities across currencies

12.30 - 13.30 Lunch

13.30 - 17.00

The transition from IBOR to RFR

  • Banks
    • What role does IBOR play within a bank?
      • Baseline funding rate
      • Input to funds transfer rate (FTP)
      • Key pricing benchmark for corporate lending
      • Key variable in interest rate derivative products
    • The transition from IBOR
      • Identifying what the future under RFRs will look like for all bank departments
      • The important transition decisions and operational requirements
      • Communicating the effects of the transition to clients
    • What will drive liquidity in the RFR bank-funding market?
  • Borrowers
    • What is the impact of RFRs on floating-rate borrowers?
    • What will drive the movement from IBOR-linked to RFR-linked borrowing?
    • Managing the transition for a corporate borrower
      • Market understanding and system changes
  • Investors
    • What are the requirements of floating-rate investors?
    • How will investors become comfortable with the transition away from IBOR?
      • Market development, liquidity and transparency, system requirements
  • How are regulators driving the transition from IBOR to RFRs?

Issuing bonds linked to the new RFRs

  • The market place for RFR-linked floating rate bonds
    • What do investors want?
    • What is the process of issuing bonds linked to the new RFRs?
    • Issuance to date by currency and issuer type
    • Investor reaction to RFR-linked floating rate bonds
  • Pricing of RFR-linked bonds
    • In theory, how should the RFR spread be priced?
    • The IBOR/RFR basis
      • What is the basis?
      • How is observed/traded?
    • How has the market priced and absorbed the bonds issued?
  • Bond term sheet details
    • Fixing source
    • Rate and settlement calculations

Tuesday, October 15

09.00 - 12.30

Corporate lending linked to the new RFRs

  • Why is IBOR so popular in corporate loans?
  • How would an RFR-linked corporate loan work?
  • The problem with the 'forward-looking term loan' nature of IBOR
    • How do we replace a 3-month rate with and overnight rate?
    • Why does the corporate loan market need a 'term' rate, e.g. 3-month ESTER?
    • How do we develop a 'forward-looking term rate' for RFRs?
  • Probable corporate loan characteristics post-IBOR
    • Fixing sources for term RFRs
    • Rate and settlement calculations
    • Pricing versus IBOR-linked equivalent
  • Pricing corporate loans
    • Replacing the credit and liquidity information from IBOR
    • Using RFRs to determine FTP rates

Derivatives referencing the new RFRs

  • Why is IBOR used in derivatives contracts?
  • Replacing IBOR in FRA, Futures and IRS trades
    • Existing market for overnight index futures
      • Fed Funds, EONIA, SONIA
      • Contract descriptions
    • New RFR futures contracts
      • SOFR, ESTER, SARON
      • Contract descriptions
    • What is the existing market for overnight index swaps (OIS)?
    • How would a swap market based upon new RFRs work?
      • Swaps versus daily reset/compounding
      • Swaps versus term RFR rates
      • How would term RFR resets work?
      • Basis trading versus IBOR swaps
    • Hedging using RFR-linked swaps
      • RFR-linked 'new issue swaps'
      • Asset swaps (fixed to RFR)
      • RFR-linked corporate loan hedging

12.30 - 13.30 Lunch

13.30 - 17.00

Migrating legacy IBOR deals

  • The case for migrating legacy IBOR deals to the new RFRs
    • Complications in floating-rate bonds and corporate loans
    • Does current documentation contain fall-back provisions to deal with the end of IBOR?
      • What are the common fall-back provisions?
  • Transition to RFRs for floating-rate bonds
    • What do borrowers and investors require from the transition and how can these requirements be met?
    • How do we price the replacement bond coupon to make the transition fair to both sides?
  • Transition to RFRs for corporate loans
    • What do companies and banks require from the transition and how can these requirements be met?
    • Dealing with the choice of term RFR and reset rate source
    • How do we price the replacement loan margin to make the transition fair to both sides?
  • In the post-IBOR world, what have we gained (or lost)?
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