Beyond Libor : Transition to a World without Libor

Jakarta : October 9th 2019

Speaker : Kevin Lau Tien Lok

Bloomberg Singapore
Workflow Specialist

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 3m USD LIBOR +50 3m USD LIBOR +50 3m USD LIBOR +50

31 Dec
2021

Which benchmark ?
What equivalent spread

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 LIBOR to SOFR Transition Timeline

https://www.newyorkfed.org/medialibrary/microsites/arrc/files/libor-timeline.pdf - Last Updated in Jan 2019

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ARR for 5 LIBOR Currencies (Plus AUD & SGD)
Alternative Rate Secured vs. Expected Launch
Currency Working Group Public Sector
Overnight RFR Administrator Unsecured Date
Working Group
European Central €STER European Central
EUR on Euro Risk-Free
Rates
Bank (+ 8.5bps spread) Bank
Unsecured October 2019

Cross-Industry
Currently
JPY Committee on
Yen Benchmarks
Bank of Japan TONA Bank of Japan Unsecured
published

National
Swiss National SIX Swiss Currently
CHF Working Group
Reference Rates
Bank
SARON
Exchange
Secured
published

Working Group
Currently
GBP on Sterling Risk-
free Rates
Bank of England SONIA Bank of England Unsecured
published

Alternative SOFR Federal Reserve

Currently
USD Reference Rates
Committee
Federal Reserve (spread not
determined yet)
Bank of New
York
Secured
published

Reserve Bank of Reserve Bank of Currently

AUD RBA & ASIC
Australia
AONIA
Australia
Unsecured
published

SGD MAS & SFEMC ABS SORA ABS SOR Feedback

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ARR Work in Progress in APAC Region
Alternative Rate Secured vs. Expected
Currency Working Group Public Sector
Overnight RFR Administrator Unsecured Launch Date
Bank Indonesia Currently
IDR and IFEMC
Bank Indonesia INDONIA Bank Indonesia Unsecured
Published
Bank Negara Bank Negara Bank Negara
MYR Malaysia Malaysia Malaysia
Bank of Bank of Bank of
THB Thailand Thailand Thailand
SOR

PHP BAP BSP & BAP BAP SOR

Currently
Working Group
HKD on HONIA
HKMA & TMA HONIA TMA Unsecured Published
HIBOR*
Working Group Bankers
Inter Bank
TWD on TAIBOR &
TWD Spot
Association &
IBMC
Money Centre

Benchmark BOK, KFB & KFB

KRW Working Group KOFIA KOFIA

Currently
INR RBI FBIL O/N MIBOR* FBIL Unsecured
Published*
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Finding Information on Bloomberg

NI BLPRFR<GO>
for RFR updates

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LIBOR versus SOFR comparison
LIBOR SOFR

Tenor Multiple Tenors Overnight

Rank Unsecured Securitized (Tri Party Repo)
Volume USD$500 million USD$754 billion
Calculation Data Expert Opinion Transaction Data
IOSCO Compliant No Yes
Calculation Agent ICE Federal Reserve Bank of
New York

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ISDA Consultation 2018
Spread Adjustment Method
Forward Market Historical
Spot Spread
Term Structure Mean/Median
Complex Reproducible Large Fixing event
Model dependent Simple No Term Structure
Not NPV neutral NPV neutral Not NPV neutral

Interest Rate Adjustment

Convexity Compounded in Compounded in
Spot Overnight
Adjusted Arrears Advanced
No Term Structure Slightly better than Spot
Interest known at period Wrong Observation
Huge Volatility for SOFR! Huge Volatility for SOFR!
end Period!
Simple Simple
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ISDA Consultation 2018 Response
Spread Adjustment Method
Forward Market Historical
Spot Spread
Term Structure Mean/Median
Complex Reproducible Large Fixing event
Model dependent Simple No Term Structure
Not NPV neutral NPV neutral Not NPV neutral

Interest Rate Adjustment Alternative?

Spot Convexity Compounded Compounded Term Risk Free Rates
Overnight Adjusted in Arrears in Advanced
No Term Structure Slightly better than Spot
Huge Volatility for Huge Volatility for Interest known at Wrong Observation Can use Futures or
SOFR! SOFR! period end Period! OTC
Simple Simple
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Enhancing Transparency Through RFRs
EONC <GO>
Calculates the effective
rate and capitalization of
overnight indices

- Index Lag
- Add all RFR
- Index Support
- Rates Cut Off Days
(Lockout)
- Compounding or
Averaging
- Spread Field
- Spread to be included
as an option

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Process of migration

• NEW CONTRACTS

• NEW DEBT LINKED TO RFR’s

• NEW BASIS SPREADS QUOTED ON SOFR LIBOR

• NEW CURVES NEEDED TO REPLACE LIBOR CURVES ( IF DISPLACED)

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 SOFRRATE Index<GO>
SOFR volatile
relative to Fed
Funds & USD
LIBOR O/N

Historical SOFR
rates data
provided by NY
Fed.

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SOFR & SONIA Linked FRN SRCH<GO>

All USD & GBP FRN SOFR & SONIA FRN

As of April 1st
2019 there are 72
SOFR floating rate
notes issued in
the market.

For full list run

SRCH GBP SONIA FRN have taken over
@SOFRFLOAT<GO> 24,872 / 35,018 = 71%
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USD SOFR FRN Example
Daily
observations
of SOFR until
4 days before
interest
payment date!

Often Coupon
uses simple
average!

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CME SOFR Futures (ICE & CME)
3 Month CME - SFRA Comdty<GO> 3 Month ICE SRLA Comdty<GO>

1 Month CME - SERA Comdty<GO>

Where is Liquidity
concentrated?
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CME 1 Month SOFR Future Dominates Open
Interest

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Eurodollar Futures still Dominate SOFR Futures

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Finding SOFR Basis on Bloomberg on OTC<GO>
OTC HKD SOFR <GO>
Locate SOFR data
points and quick links to
related screens
All tickers can be used
on ICVS 490

Functions Link: Click to go to

1. SOFR Information Page
2. SOFR Float / Fix Swap Curve from
contributed data
3. Swap Template for SOFR
4. CME 3M SOFR Futures Contracts
5. Access to LIBOR-OIS spreads
6. Euro Short Term Rate Help Page
7. Calculate effective rate for ON Indices

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Infrastructure for OIS Trading
Basis adjusted SOFR
swap curve

Clients can add

relevant futures points.
SOFR Fixing
OTC HKD SOFR<GO>
for full list of tickers on
various adjusted basis
data
SOFR Futures
Convexity Adj
FF OIS + SOFR / FF
Basis Composite

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SWPM<GO> SOFR Derivative Structuring
All of our derivatives
pricing engine has
been updated to
support SOFR curves.
An example set-up in
SWPM<GO>

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BBTI<GO> SOFR Derivative Execution
Our IRS electronic
trading portal
BBTI<GO> has been
updated to include
banks’ quotes on
SOFR-OIS.

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SDR<GO> Derivative Trade Reporting
SOFR-based OIS
trades had begun in
the market.

SDR<GO> has been

enhanced to display
reported SOFR
trades.

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Volume on New RFR Trades

SOFR-based OIS
trades had begun in
the market.

SDR<GO> for SOFR

trades.

EMEAP July Meeting

key takeaway:
Big Bang transition of
SOFR by CME and LCH
gives legs to SOFR
transition

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IMPACT TO AN ORGANISATION

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 PATH FORWARD

(fallback provision clause)

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28
 LIBOR Transition: An Opportunity to Grow

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Preparation For Impact Assessment
Bloomberg preparation as client firms
will assess the impact of the
transition across products, clients and
infrastructure.

• Data
• Pricing
• Analytics
• Execution
• OMS
• Risk Management
• Enterprise Solution

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BLOOMBERG SOLUTIONS

• IMPACT ANALYSIS OF TRANSITION FROM IBOR TO RFR

• WHICH CASH BONDS HAVE FALLBACK LANGUAGE

• MARS TO STUDY IMPACT AND RISK

• MARS API

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Impact to Cash Markets in Asia

USD $64.4 billion of Asian

USD $158.5 billion of Asian
floaters maturing from
syndicated loans maturing
2022 onwards
from 2022 onwards
269 issues
439 tranches

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Cash: Libor Fallback Coverage
As of July 2019: Security Coverage Identified

• 28,301 Active securities with an IBOR as underlying index

• 13,692 with maturity > 1st Jan 2022 and issue date < 1st Jan 2019
 5,512 Corporate Securities for all 5 IBORS
 182 Preferred Securities
 580 Municipal Securities
 4,520 Loans
• 63,667 Mortgages and Structured Product (Still researching)
• Fallback@Bloomberg.net to support procurement of addition
prospectus from issuers

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Enterprise Tool: Cash Market Fall Back
LIBOR Fall-Back Field Definition Draft

2. Type of Fall-Back
A. The method of fallback provision from the fallback
definition.

i. Determined by Agent
1. An involved party agent will decide the new rate(s) due
to the fallback being used.

ii. Previous Floating Coupon or Fixed Rate

1. The new rate(s) due to the fallback being used will be
based on a previous floating coupon or new fixed rate.

iii. Different Benchmark

The new rate(s) due to the fallback being

iv. Other
The new rate(s) is determined by said fallback method.

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 Analyzing Impacts of LIBOR-SOFR Migration

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 Analyzing Impacts of LIBOR-SOFR Migration
Portfolio Risk Management Tool in MARS<GO>

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 Analyzing Impacts of LIBOR-SOFR Migration
MARS API: Unboxing Bloomberg’s Risk System

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 LIBOR Fallback Corporate Securities Review

Release on DES and on Data License File

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Q&A