The market needs to act now on $IBOR reform
The transition away from Interbank Offered Rates (IBORs) and their replacement with ‘nearly’ risk-free rates (RFRs) is a shift so significant that it is difficult to think of a modern day analogy in capital markets.
The adoption of RFRs for non-USD currencies, which occurred at the end of 2021, required a large and co-ordinated effort on the part of institutions and their clients. Now, markets must prepare for the USD transition in June 2023 – a ‘big bang’ that, as a result of the sheer volume of transactions affected, represents a daunting body of work for a range of market participants.
There is a sense amongst many that the bulk of the work has already been done. The efficiency with which non-USD trades have been migrated seems to have lulled some institutions into a false sense of security. Many appear to believe that the foundations are now in place, and the USD transition will simply amount to a ‘scaling up’ of the non-USD work.
As we will see over the course of this dedicated series of articles, events, and publications, this is only half the picture. In fact, there are significant workstreams that many institutions are still struggling to progress with.
Computationally intensive, high-volume
The sheer volume of transactions affected means that the USD transition will far outweigh non-USD for most institutions. This means many more person-hours spent on manual exception handling, dealing with trades that do not transition smoothly.