My Company Has an Existing Loan That References SOR and Matures After End 2021
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Interbank Offered Rates (Ibors) and Alternative Reference Rates (Arrs)
VERSION: 24 SEPTEMBER 2020 Interbank Offered Rates (IBORs) and Alternative Reference Rates (ARRs) The following table has been compiled on the basis of publicly available information. Whilst reasonable care has been taken to ensure that the information in the table is accurate as at the date that the table was last revised, no warranty or representation is given as to the information in the table. The information in the table is a summary, is not exhaustive and is subject to change. Key Multiple-rate approach (IBOR + RFR) Moving to RFR only IBOR only Basis on Development of Expected/ Expected fall which forward-looking likely fall- back rate to IBOR is Expected ARR? back rate to the ARR (if 3 Expected being Date from date by the IBOR2 applicable) discontinu continued which which ation date (if Alternative ARR will replaceme for IBOR applicable Reference be nt of IBOR Currency IBOR (if any) )1 Rate published is needed ARS BAIBAR TBC TBC TBC TBC TBC TBC TBC (Argentina) 1 Information in this column is taken from Financial Stability Board “Reforming major interest rate benchmarks” progress reports and other publicly available English language sources. 2 This column sets out current expectations based on publicly available information but in many cases no formal decisions have been taken or announcements made. This column will be revisited and revised following publication of the ISDA 2020 IBOR Fallbacks Protocol. References in this column to a rate being “Adjusted” are to such rate with adjustments being made (i) to reflect the fact that the applicable ARR may be an overnight rate while the IBOR rate will be a term rate and (ii) to add a spread. -
Replacing the LIBOR with a Transparent and Reliable Index of Interbank Borrowing: Comments on the Wheatley Review of LIBOR Initial Discussion Paper
Replacing the LIBOR with a Transparent and Reliable Index of Interbank Borrowing: Comments on the Wheatley Review of LIBOR Initial Discussion Paper 6 September 2012 * Rosa M. Abrantes-Metz and David S. Evans *Abrantes-Metz is Adjunct Associate Professor at the Stern School of Business, New York University and a Principal of Global Economics Group; Evans is Executive Director of the Jevons Institute for Competition Law and Economics and Visiting Professor at the University College London, Lecturer at the University of Chicago Law School, and Chairman, Global Economics Group. The authors thank John H. Cochrane, Albert D. Metz, Richard Schmalensee, and Brian Smith for helpful insights. The views expressed are those of the authors and should not be attributed to affiliated institutions or their clients. 1 I. Summary 1. The Wheatley Review released its Initial Discussion Paper (the “Discussion Paper”) on August 10, 2012 and has sought comments on its preliminary findings and recommendations on how to reform the London Interbank Offered Rate (“LIBOR”).1 2. This submission presents an alternative to the LIBOR that would in our view: a. Eliminate or significantly reduce the severe defects in the LIBOR which lead the Discussion Paper to conclude that continuing with the current system is “not a viable option;”2 b. Provide a transparent and reliable measure of interbank lending rates during normal times as well as financial crises; c. Minimize disruptions to the market; and, d. Provide parties relying on the LIBOR with a standard that would maintain continuity with the LIBOR. 3. This alternative, which we call the “Committed” LIBOR (CLIBOR), would: a. -
LIBOR Transition Key Dates
IBOR Reform Key Dates July 2021 Disclaimer J.P.Morgan does not provide legal, tax, financial or accounting advice and clients should consider any loan amendments and the appropriateness of the fallbacks incorporated therein together with their legal, tax, financial and accounting advisers, taking into consideration their own particular circumstances and the fallbacks that may be applicable in any related products. Please visit the following link for JPMorgan disclosures: https://www.jpmorgan.com/global/disclosures Key IBOR Transition Dates Currency IBOR Settings Permanent Cessation Date1 Cease Trading New IBOR Contracts Select Milestones LIBOR (1-week and 2-month) December 31, 2021 FRB/FDIC/OCC: The agencies encourage banks to cease entering into new contracts that use USD LIBOR as a reference rate as soon as practicable and in any event by December 31st, 2021. The Commodity Futures Trading Commission’s (CFTC) Market Risk Advisory Committee (MRAC) Interest Rate Benchmark Reform Subcommittee: ◼ Recommends that on July 26th, 2021 and thereafter, that USD End 2021 (All Products) interdealer trading conventions switch from LIBOR to the LIBOR (Overnight, 1-month, 3- June 30, 2023 Secured Overnight Financing Rate (SOFR) for USD linear month, 6-month, 12-month) interest rate swaps. This is referred to as “SOFR First”. ◼ The SOFR First initiative also recommends keeping interdealer brokers’ screens for LIBOR linear swaps available until October 22nd, 2021, but for information purposes only. After this date, these screens should be turned off. -
Derivative Valuation Methodologies for Real Estate Investments
Derivative valuation methodologies for real estate investments Revised September 2016 Proprietary and confidential Executive summary Chatham Financial is the largest independent interest rate and foreign exchange risk management consulting company, serving clients in the areas of interest rate risk, foreign currency exposure, accounting compliance, and debt valuations. As part of its service offering, Chatham provides daily valuations for tens of thousands of interest rate, foreign currency, and commodity derivatives. The interest rate derivatives valued include swaps, cross currency swaps, basis swaps, swaptions, cancellable swaps, caps, floors, collars, corridors, and interest rate options in over 50 market standard indices. The foreign exchange derivatives valued nightly include FX forwards, FX options, and FX collars in all of the major currency pairs and many emerging market currency pairs. The commodity derivatives valued include commodity swaps and commodity options. We currently support all major commodity types traded on the CME, CBOT, ICE, and the LME. Summary of process and controls – FX and IR instruments Each day at 4:00 p.m. Eastern time, our systems take a “snapshot” of the market to obtain close of business rates. Our systems pull over 9,500 rates including LIBOR fixings, Eurodollar futures, swap rates, exchange rates, treasuries, etc. This market data is obtained via direct feeds from Bloomberg and Reuters and from Inter-Dealer Brokers. After the data is pulled into the system, it goes through the rates control process. In this process, each rate is compared to its historical values. Any rate that has changed more than the mean and related standard deviation would indicate as normal is considered an outlier and is flagged for further investigation by the Analytics team. -
Buy-Side Participation in OTC Derivatives Markets
Buy-side Participation in OTC Derivatives Markets July 2017 SOLUM FINANCIAL LIMITED www.solum-financial.com Glossary CCP Central Counterparty CTD Cheapest-to-deliver CSA Credit Support Annex EMIR European Market Infrastructure Regulation FRS Financial Reporting Standards IFRS International Financial Reporting Standards ISDA International Swaps and Derivatives Association, Inc. LDI Liability-driven Investment LIBOR London Interbank Offered Rate MiFID Markets in Financial Instruments Directive MiFIR Markets in Financial Instruments Regulation MMFs Money Market Funds MVA Margin Value Adjustment OIS Overnight Indexed Swap OTC Over-the-counter SONIA Sterling Overnight Index Average SIMM Standard Initial Margin Model TRS Total Return Swaps UMR Uncleared Margin Rules xVA Derivatives Valuation Adjustment (includes all of CVA/DVA/FCA/FBA/KVA/MVA etc.) Solum Disclaimer This paper is provided for your information only and does not constitute legal, tax, accountancy or regulatory advice or advice in relation to the purpose of buying or selling securities or other financial instruments. No representation, warranty, responsibility or liability, express or implied, is made to or accepted by us or any of our principals, officers, contractors or agents in relation to the accuracy, appropriateness or completeness of this paper. All information and opinions contained in this paper are subject to change without notice, and we have no responsibility to update this paper after the date hereof. This report may not be reproduced or circulated without our prior written authority. 2 1 Introduction Buy-side institutions have very different business models to their dealing counterparties on the sell-side, and operate under a separate regulatory framework. Whilst banks will usually seek to run a balanced book of derivatives, buy-side institutions are often running highly directional portfolios as they seek to hedge the liabilities of pension fund clients or express macro-economic views. -
APAC IBOR Transition Benchmarking Study
R E P O R T APAC IBOR Transition Benchmarking Study. July 2020 Banking & Finance. 0 0 sia-partners.com 0 0 Content 6 • Executive summary 8 • Summary of APAC IBOR transitions 9 • APAC IBOR deep dives 10 Hong Kong 11 Singapore 13 Japan 15 Australia 16 New Zealand 17 Thailand 18 Philippines 19 Indonesia 20 Malaysia 21 South Korea 22 • Benchmarking study findings 23 • Planning the next 12 months 24 • How Sia Partners can help 0 0 Editorial team. Maximilien Bouchet Domitille Mozat Ernest Yuen Nikhilesh Pagrut Joyce Chan 0 0 Foreword. Financial benchmarks play a significant role in the global financial system. They are referenced in a multitude of financial contracts, from derivatives and securities to consumer and business loans. Many interest rate benchmarks such as the London Interbank Offered Rate (LIBOR) are calculated based on submissions from a panel of banks. However, since the global financial crisis in 2008, there was a notable decline in the liquidity of the unsecured money markets combined with incidents of benchmark manipulation. In July 2013, IOSCO Principles for Financial Benchmarks have been published to improve their robustness and integrity. One year later, the Financial Stability Board Official Sector Steering Group released a report titled “Reforming Major Interest Rate Benchmarks”, recommending relevant authorities and market participants to develop and adopt appropriate alternative reference rates (ARRs), including risk- free rates (RFRs). In July 2017, the UK Financial Conduct Authority (FCA), announced that by the end of 2021 the FCA would no longer compel panel banks to submit quotes for LIBOR. And in March 2020, in response to the Covid-19 outbreak, the FCA stressed that the assumption of an end of the LIBOR publication after 2021 has not changed. -
LIBOR Transition Market Update: July 16
LIBOR Transition Market update: July 16 - 31, 2020 518 days to December 31, 2021 1 - Highlights - €STR discounting switch in the books 1 Highlights — SOFR up next €STR discounting switch in the books — SOFR up next - ECB report: banks generally behind What happened? A key milestone in the transition to new schedule RFRs in the Euro markets has been completed, as the central - ARRC’s syndicated loan conventions: counterparty (CCP) clearinghouses have switched from Choose your own adventure? EONIA to €STR as the rate for calculation of price alignment interest (the interest paid on collateral) for EUR-denominated - EC legislative proposal to address interest rate swaps and consequently discounting future cash legacy contracts that cannot be flows. Indications are that the switch was accomplished transitioned without major issues. - ECB’s plans to publish compound €STR The eyes of the financial world now turn to the USD averages derivatives markets, as market participants prepare for the corresponding switch for cleared USD interest rate derivatives - SIBOR no more? SORA proposed as from the effective federal funds rate (EFFR) to SOFR, main benchmark in Singapore scheduled for the weekend of October 17, 2020. At the CFTC’s last Market Risk Advisory Committee (MRAC) 2 – RFR adoption: Derivatives meeting, the subcommittee on interest rate benchmark reform delivered a report summarizing the learnings from a recent - Futures and options tabletop exercise on the discounting switch conducted earlier - Swaps trading this year: - Enhanced education is needed for all involved parties. 3 – RFR adoption: Cash products - Risk mitigation strategies should be considered in advance of the discounting switch. -
Modelling and Forecasting Macroeconomic
Temi di discussione (Working Papers) Modeling and forecasting macroeconomic downside risk by Davide Delle Monache, Andrea De Polis and Ivan Petrella March 2021 March Number 1324 Temi di discussione (Working Papers) Modeling and forecasting macroeconomic downside risk by Davide Delle Monache, Andrea De Polis and Ivan Petrella Number 1324 - March 2021 The papers published in the Temi di discussione series describe preliminary results and are made available to the public to encourage discussion and elicit comments. The views expressed in the articles are those of the authors and do not involve the responsibility of the Bank. Editorial Board: Federico Cingano, Marianna Riggi, Monica Andini, Audinga Baltrunaite, Marco Bottone, Davide Delle Monache, Sara Formai, Francesco Franceschi, Adriana Grasso, Salvatore Lo Bello, Juho Taneli Makinen, Luca Metelli, Marco Savegnago. Editorial Assistants: Alessandra Giammarco, Roberto Marano. ISSN 1594-7939 (print) ISSN 2281-3950 (online) Printed by the Printing and Publishing Division of the Bank of Italy MODELING AND FORECASTING MACROECONOMIC DOWNSIDE RISK by Davide Delle Monache*, Andrea De Polis** and Ivan Petrella** Abstract We document a substantial increase in downside risk to US economic growth over the last 30 years. By modelling secular trends and cyclical changes of the predictive density of GDP growth, we find an accelerating decline in the skewness of the conditional distributions, with significant, procyclical variations. Decreasing trend-skewness, which turned negative in the aftermath of the Great Recession, is associated with the long-run growth slowdown started in the early 2000s. Short-run skewness fluctuations imply negatively skewed predictive densities ahead of and during recessions, often anticipated by deteriorating financial conditions, while positively skewed distributions characterize expansions. -
LIBOR Fallback and Quantitative Finance
risks Article LIBOR Fallback and Quantitative Finance Marc Pierre Henrard 1,2 1 muRisQ Advisory, 8B-1210 Brussels, Belgium; [email protected] 2 University College London, London WC1E 6BT, UK Received: 19 April 2019; Accepted: 5 August 2019; Published: 15 August 2019 Abstract: With the expected discontinuation of the LIBOR publication, a robust fallback for related financial instruments is paramount. In recent months, several consultations have taken place on the subject. The results of the first ISDA consultation have been published in November 2018 and a new one just finished at the time of writing. This note describes issues associated to the proposed approaches and potential alternative approaches in the framework and the context of quantitative finance. It evidences a clear lack of details and lack of measurability of the proposed approaches which would not be achievable in practice. It also describes the potential of asymmetrical information between market participants coming from the adjustment spread computation. In the opinion of this author, a fundamental revision of the fallback’s foundations is required. Keywords: LIBOR fallback; derivative pricing; multi-curve framework; collateral; pay-off measurability; value transfer; ISDA consultations 1. Introduction Since their creation in 1986, LIBOR benchmarks1 have grown in importance to the point of being called in finance newspapers the most important number in the world. This was the case up to July 2017, when Bailey(2017), the CEO of the U.K. Financial Conduct Authority (FCA), indicated in a speech that there is an increased expectation that some LIBOR benchmarks will be discontinued in a not too distant future. -
Trends in Credit Basis Spreads Nina Boyarchenko, Pooja Gupta, Nick Steele, and Jacqueline Yen
Trends in Credit Basis Spreads Nina Boyarchenko, Pooja Gupta, Nick Steele, and Jacqueline Yen OVERVIEW orporate bonds represent an important source of funding for public corporations in the United States. When these • The second half of 2015 and C the first quarter of 2016 saw a bonds cannot be easily traded in secondary markets or when large, prolonged widening of investors cannot easily hedge their bond positions in derivatives spreads in credit market basis markets, corporate issuance costs increase, leading to higher trades—between the cash bond overall funding costs. In this article, we examine two credit and CDS markets and between market basis trades: the cash bond-credit default swap segments of the CDS market. (CDS) basis and the single-name CDS-index CDS (CDX) basis, • This article examines evaluating potential explanations proposed for the widening in three potential sources of both bases that occurred in the second half of 2015 and first the persistent dislocation: (1) increased idiosyncratic quarter of 2016. risk, (2) strategic positioning in The prolonged dislocation between the cash bond and CDS CDS products by institutional markets, and between segments of the CDS market, surprised investors, and (3) post-crisis market participants. In the past, participants executed basis trades regulatory changes. anticipating that the spreads between the cash and derivative • The authors argue that, markets would retrace to more normal levels. This type of trading though post-crisis regulatory activity serves to link valuations in the two markets and helps changes themselves are not correct price differences associated with transient or technical the cause of credit basis widening, increased funding factors. -
Impact of the Financial Crisis on Derivative Valuation
University of Tennessee, Knoxville TRACE: Tennessee Research and Creative Exchange Supervised Undergraduate Student Research Chancellor’s Honors Program Projects and Creative Work 5-2014 Impact of the Financial Crisis on Derivative Valuation Samuel M. Berklacich [email protected] Follow this and additional works at: https://trace.tennessee.edu/utk_chanhonoproj Part of the Finance and Financial Management Commons, and the Portfolio and Security Analysis Commons Recommended Citation Berklacich, Samuel M., "Impact of the Financial Crisis on Derivative Valuation" (2014). Chancellor’s Honors Program Projects. https://trace.tennessee.edu/utk_chanhonoproj/1704 This Dissertation/Thesis is brought to you for free and open access by the Supervised Undergraduate Student Research and Creative Work at TRACE: Tennessee Research and Creative Exchange. It has been accepted for inclusion in Chancellor’s Honors Program Projects by an authorized administrator of TRACE: Tennessee Research and Creative Exchange. For more information, please contact [email protected]. Impact of the Financial Crisis on Derivative Valuation Sam Berklacich INTRO The financial crisis of 2007 highlighted some tremendous flaws within the financial industry. In a little over a year, close to $8 trillion was wiped out from the U.S. economy with significant ripples sent through out the global economy. The world’s largest economy had fallen victim to one of the most exotic and complex of financial instruments in the global economy: derivatives. With a present day market valued over 5x the domestic GDP, financial derivatives still play a major role within the industry. Furthermore, a very significant portion of the derivatives market is traded “over-the-counter” with much less regulation. -
Revisiting the Inflation Versus Deflation Debate and Taking A
RATES Revisiting The Inflation Versus Deflation Debate STRATEGY And Taking A Look At US Election Risk US and SG money market rates have floored. Improved liquidity seen in SORA products. Steeper yield curves driven by higher bond yields. Discussion 1: US inflation has undershot the Fed’s 2% target since 2019, the new AIT regime means a Fed that will be less sensitive to inflation upside in order to make up for the prior periods of undershooting. Discussion 2: A contested US election outcome is on our risk radar for 4Q. The ensuing “risk off” narrative will see yields pressured lower and a richer US dollar premium. Money Markets Funding markets in the US and locally have 1Y Swaps Forward Curves Vs. Spot largely found a floor over the past quarter. (Difference - %) We believe that liquidity conditions will be Source: Bloomberg, UOB Global Economics & Markets Research maintained at accommodative levels since policy makers will want to avoid endangering 0.80 the nascent economic recovery by prematurely removing their support. At the same time, the 0.60 COVID-19 shock is also clearly less acute now which will argue against unleashing additional 0.40 floods of liquidity into markets at this point. 0.20 The likely scenario Forwards markets are priced for a more is for US and SG meaningful increase in yields beyond three 0.00 money market rates years. This also overlaps with the latest Fed to stay range bound dot-plots, and we do not have an argument -0.20 at prevailing levels against either. The likely scenario is for US and Spot 6M 1Y 18M 3Y 5Y until signs of economic SG money market rates to stay range bound US SI overheating emerges.