LIBOR Transition POV with Feedback V1

LIBOR Transition A Mindtree Point of View for Banking and Financial Institutions for LIBOR Transition Context

The London Interbank Offered Rate (LIBOR) is widely used in the global financial markets and is called the “world’s most important Interbank Offered Rates” with a notional value of over US$ 350 trillion globally. It is calculated and published daily in five currencies (GBP, USD, EUR, JPY, and CHF), and seven maturities (overnight, one week, and 1, 2, 3, 6 and 12 months) by the Intercontinental Exchange Benchmark Administrator (ICE BA).

In 2012, a series of allegations were raised against LIBOR for calculations, and numerous ﬁnes were imposed on several international banks. For this, the UK Government had conducted Wheatley Review that recommended:

 Continuing the usage of LIBOR Reforms rather than replacing them

 Called for a strict process to verify submissions with transaction data

 Market participants should play a signiﬁcant role in LIBOR production and oversight

Benchmark transition has been on the global agenda since 2014 and ﬁnally in 2017, the Financial Conduct Authority (FCA) examined the future of LIBOR and passed the regulation to replace LIBOR with an Alternative Risk-Free rate. LIBOR scam has also been linked to Derivatives, Bonds, Mortgages, Loans, Mutual Funds, Securities, Underwriting, Deposits Advances, Pension Funds, and Contracts worth $370 trillion. All these also need to be transitioned to a new benchmark rate wherein the Central Banks and Regulatory Authorities imposed that it would no longer persuade, or compel, banks to submit to LIBOR beyond 2021and work towards transition planning to Alternative Reference Rates (AFR’s).

Let’s have a quick look into the possible Alternative Reference Rates/Risk Free Rates (ARFR) that can be made applicable, and the timelines for LIBOR Transition.

Current Benchmark Alternative Risk-Free Rates

Jurisdiction Benchmark Administrator Alternative Administrator Overnight Underlying IR RFR rate Transaction European Central Bank EURIBOR/ European Money €STR Money (ECB) (Working Group on Yes Markets Institute (Euro Short EONIA Risk-Free Reference Rates for Markets Term Rate) (EMMI) the Euro Area) European Union

Bank of England GBP LIBOR ICE Benchmark SONIA Money (Working Group on Yes Administration (Sterling Markets Sterling Risk-Free Reference (IBA) Overnight Index Average) Rates) United Kingdom

ICE Benchmark SOFR Federal Reserve Bank Repo USD LIBOR Yes Administration (Secured of New York (FRBNY) Transactions Overnight (IBA) (Alternative Reference Rates Financing Committee) Rate) United States

CHF LIBOR ICE Benchmark SARON Swiss National bank Repo Administration (Swiss Average (SNB) and Yes Transactions Rate Overnight) (IBA) SIX Swiss Exchange (The National Working Group on CHF Reference Switzerland Rates) JPY LIBOR ICE Benchmark TONAR Bank of Japan Yes Money Administration (Tokyo (Study Group on Risk-Free Markets (IBA) Overnight Reference Rates) Average Rate) Japan

Source : 1 LIBOR Replacement – Key Timelines:

Key Dates LIBOR Transition Milestone

Sep 2012 Wheatley review of LIBOR

Jun 2014 FSB Benchmarks Report initiating changes

Dec 2016 TONA selected as AFR for LIBOR-JPY

Jul 2017 FCA Andrew Bailey announced LIBOR replacement

Dec 2017 SARON selected as AFR LIBOR-CHF

Feb 2018 IISDA Roadmap released

Apr 2018 SOFR launched as AFR by US Fed reserve for LIBOR-USD

Apr 2018 SONIA launched as AFR by Bank of England for LIBOR-GBP

Oct 2019 €STR AFR by ECB for LIBOR-EUR

Dec 2021 FCA stops LIBOR Support

Also, appraise the LIBOR transition scope with respect to product and their notional value after 2021. (Go live) are as follows:

Benchmark Notional value Products Product examples Market participants Currency after 2021

    Interest rate swaps, Forward Rate $28 Tn Central  GBP LIBOR Over-the- Counter (OTC) Agreements (FRAs),  $2 Tn Counterparties (CCPs)  cross-currency swaps  USD LIBOR derivatives  Exchanges  Exchange-  Interest rate options, Interest rate  EURO LIBOR,  $110 By  Government EURIBOR Traded futures Derivatives Sponsored Enterprise (GSE)  CHF LIBOR (ETDs)

 Loans  Syndicated loans, business loans,  $255 Bn  Investment banks  JPY LIBOR, mortgages, credit cards, auto loans, JPY TIBOR,  consumer loans, student loans  Commercial banks EUROYEN TIBOR  Bonds And  Corporate and non-US government  $288 Bn  Asset Managers Floating Rate bonds, agency notes, trade ﬁnance, notes (FRNs) FRNs, covered bonds, capital  Pension funds securities,  Hedge funds  Short-term  Repos, reverse repos, time Instruments deposits Credit Default Swaps  Regulated funds (CDS), commercial paper  Corporations, Banks  Securitized  Mortgage-backed Securities (MBS),  $516 Bn Products  Asset-backed Securities (ABS), (MBS)  Commercial Mortgage-backed  $90 Bn Securities (CMBS), (ABS)  Collateralized Loan Obligation (CLO),  Collateralized Mortgage Obligation  $296 Bn (CMO) (CLO) Mindtree can also collaborate with the ﬁnancial institution in designing LIBOR transition roadmap in four phases: Mindtree’s partner led Cognitive AI/ML Solution for LIBOR Transition

Initial and Exposure Assessment Transition planning and implementation The NLP based platform will help in

a) Product identification: Identify all Products and requirements 2. Extraction of key terms from the existing LIBOR underlying products/instruments influenced by b) Redesign the Business workflow and aligned contracts

changes. Call out products that need to be transitioned application. Recalibrate Valuations, Forecasting, 3. Identifying the new terms to be included based on to new rates or products that are maturing before 2021. and Scenario models the product category

b) Legal Documentation: Determine all existing and new c) Use intelligent solutions such as AI/ML led by NLP 4. Identifying the fallback provisions contracts which will be impacted by LIBOR transition. model to read, identify, report, and revise the 5. Building contract amendments c) Client/Counterparties: List Counter party and Clients contracts, and capture the appropriate Alternate Risk 6. Trade rate reset and validation across all related impacted with LIBOR changes, and communicate the Free rates in the application documents Transition impact on the Financial Market eco-system? actual accrual changes d) Eﬀective Counter party/Client outreach throughout d) Risk Analysis and Valuation: Identify the contract Contract Lifecycle with Bulk mail automation mechanism Individual ﬁnancial institutions are expected to spend 50-100 million USD per year for the next two years. Analysts term structure on who will be impacted with the e) Data Management Changes in Enterprise data believe that for the IT industry, 50% of this pie would be the opportunity size. The opportunities include: new Alternative RFR, risk and valuation models that management platform, modelling approach, and  Assessment of current exposure to LIBOR require changes third-party data integrations to align with the rates

 Creation of new products based on new rates e) Business Process and application changes: Listing replacements  Creation of new legal documents/contract amendments for the existing contracts which will go beyond 2021 key business process affected along with the f) Testing support covering both system and User  Identification of internal and external IT dependencies affiliated application that covers Trading, Pricing, acceptance and building workflow to monitor new  Adjustment of data management (historical data) Liquidity, Finance, Tax, Accounting, Treasury, Risk, and Alternate RFR rates impact.  Process adjustments other functions Major impacts will happen in data management space wherein new ARR's create multiple challenges in Data sourcing, Readiness and Post Go-live managed services Modelling, and Distributing. Change impact from sourcing feeds collected from Market Data vendors, will lead to Scoping and Program plan a) The operations team will provide post implementation/ modification of Data Modelling in the EDM platform, as well as downstream Data Distribution . a) Arrive on the way forward strategic program plan go-live services including Process automation, to remediate the LIBOR replacement-taking product, remediation tasks, and process excellence, underlying product, Counterparty/Clients, Legal How can Mindtree help Financial Institutions to effectively b) Capacity planning, continuous maintenance support Contracts and Business process and application Transition from LIBOR? migration The transitioning of Libor to a new benchmark rate is creating a huge opportunity for the IT industry, as well as business consulting services around it. It’s a complex assignment and its impact varies across Financial Institutions. Implementation of new alternative risk free rates that replaces LIBOR will be different for each FI due to Product exposure.

1. Analysis across enterprise covering all Lines of business and geography 2. Setting up Centralized governance and program management structure 3. Identifying the right stakeholders required to conduct the assessment, set methodology, impact analysis, and identifying the next steps from each business function. Mindtree can also collaborate with the ﬁnancial institution in designing LIBOR transition roadmap in four phases: Mindtree’s partner led Cognitive AI/ML Solution for

Initial and Scoping and Transition management Readiness and post LIBOR Transition Exposure Assessment Program plan and implementation Go-live managed services

Initial and Exposure Assessment Transition planning and implementation The NLP based platform will help in

Mindtree will conduct an initial Assessment in five a) Analyze the Products, contracts, client/counterparty, 1. Identifying all contracts for potential references to stages: Regulatory business process, and system remediation LIBOR a) Product identification: Identify all Products and requirements 2. Extraction of key terms from the existing LIBOR underlying products/instruments influenced by b) Redesign the Business workflow and aligned contracts changes. Call out products that need to be transitioned application. Recalibrate Valuations, Forecasting, 3. Identifying the new terms to be included based on to new rates or products that are maturing before 2021. and Scenario models the product category b) Legal Documentation: Determine all existing and new c) Use intelligent solutions such as AI/ML led by NLP 4. Identifying the fallback provisions contracts which will be impacted by LIBOR transition. model to read, identify, report, and revise the 5. Building contract amendments c) Client/Counterparties: List Counter party and Clients contracts, and capture the appropriate Alternate Risk 6. Trade rate reset and validation across all related impacted with LIBOR changes, and communicate the Free rates in the application documents Transition impact on the Financial Market eco-system? actual accrual changes d) Effective Counter party/Client outreach throughout d) Risk Analysis and Valuation: Identify the contract Contract Lifecycle with Bulk mail automation mechanism Individual financial institutions are expected to spend 50-100 million USD per year for the next two years. Analysts term structure on who will be impacted with the e) Data Management Changes in Enterprise data believe that for the IT industry, 50% of this pie would be the opportunity size. The opportunities include: new Alternative RFR, risk and valuation models that management platform, modelling approach, and  Assessment of current exposure to LIBOR require changes third-party data integrations to align with the rates

Major impacts will happen in data management space wherein new ARR's create multiple challenges in Data sourcing, Readiness and Post Go-live managed services  All Potential contract impacted with LIBOR replacement must be renewed Modelling, and Distributing. Change impact from sourcing feeds collected from Market Data vendors, will lead to Scoping and Program plan a) The operations team will provide post implementation/  Contracts: ISDA Masters/Credit Support Annexure, Confirms, Loans, Leases, Credit Agreements, modification of Data Modelling in the EDM platform, as well as downstream Data Distribution . a) Arrive on the way forward strategic program plan go-live services including Process automation, CHALLENGE Repos Agreement to remediate the LIBOR replacement-taking product, remediation tasks, and process excellence,  Complex Analysis: Access, identify and extract New Alternative Risk free rate replaced with underlying product, Counterparty/Clients, Legal How can Mindtree help Financial Institutions to effectively b) Capacity planning, continuous maintenance support legacy LIBOR Contracts and Business process and application migration Transition from LIBOR? Mindtree AI Solution allow Banks & Financial Institutions to

The transitioning of Libor to a new benchmark rate is creating a huge opportunity for the IT industry, as well as  On-board Automated NLP based processing engine that read, access contracts/agreement with business consulting services around it. It’s a complex assignment and its impact varies across Financial Institutions. Reference rates and extract in structured format

Implementation of new alternative risk free rates that replaces LIBOR will be diﬀerent for each FI due to Product  Floating rate contracts/agreements including derivatives conﬁrms, commercial loans, repurchase exposure. SOLUTION agreements, retail loans, etc.

 Interpret, determine and backup Rules to priorities challenging and non-standard contracts/ Mindtree will establish an Enterprise level governance and program management for LIBOR transition for Financial agreements. Institutions to access the risk and impact areas covering trading, Liquidity, Pricing, Risk valuation, Tax, Accounting,  Access and identify Rates tied to other indices like SOFR, SONIA, TONAR Legal Businesses, and Aﬃliated Technology Operations. The entire Transition roadmap covers:

1. Analysis across enterprise covering all Lines of business and geography  Eﬃcient processing of Contracts and Agreements

2. Setting up Centralized governance and program management structure  Results oriented solution

3. Identifying the right stakeholders required to conduct the assessment, set methodology, impact analysis, and  Solution identifies and processes relevant announcements resulting eliminating need for identifying the next steps from each business function. BENEFITS human intelligence and effort. Mindtree can also collaborate with the financial institution in designing LIBOR transition roadmap in four phases: Mindtree’s partner led Cognitive AI/ML Solution for Conclusion LIBOR Transition Libor replacement with Alternative Risk Free rates is a critical transformational assignment in the global Financial Market landscape. Banks and Financial institutions should act now for a successful transition to New Risk Free Rates. Mindtree recommends Financial Institutions to start their initial assessment right now, to enable cost-efficient and timely transformation. Any delays may result in a higher price for implementation. Mindtree is here to help you by Initial and Exposure Assessment Transition planning and implementation The NLP based platform will help in working with cross-functional teams within Banks & Financial Institutions to implement our transitions plans to Mindtree will conduct an initial Assessment in five a) Analyze the Products, contracts, client/counterparty, 1. Identifying all contracts for potential references to deliver a controlled and smooth transition of LIBOR with minimal business cost and disruptions. stages: Regulatory business process, and system remediation LIBOR a) Product identification: Identify all Products and requirements 2. Extraction of key terms from the existing LIBOR underlying products/instruments influenced by b) Redesign the Business workflow and aligned contracts changes. Call out products that need to be transitioned application. Recalibrate Valuations, Forecasting, 3. Identifying the new terms to be included based on to new rates or products that are maturing before 2021. and Scenario models the product category b) Legal Documentation: Determine all existing and new c) Use intelligent solutions such as AI/ML led by NLP 4. Identifying the fallback provisions contracts which will be impacted by LIBOR transition. model to read, identify, report, and revise the 5. Building contract amendments c) Client/Counterparties: List Counter party and Clients contracts, and capture the appropriate Alternate Risk 6. Trade rate reset and validation across all related impacted with LIBOR changes, and communicate the Free rates in the application documents Transition impact on the Financial Market eco-system? actual accrual changes d) Effective Counter party/Client outreach throughout d) Risk Analysis and Valuation: Identify the contract Contract Lifecycle with Bulk mail automation mechanism Individual financial institutions are expected to spend 50-100 million USD per year for the next two years. Analysts term structure on who will be impacted with the e) Data Management Changes in Enterprise data believe that for the IT industry, 50% of this pie would be the opportunity size. The opportunities include: new Alternative RFR, risk and valuation models that management platform, modelling approach, and  Assessment of current exposure to LIBOR require changes third-party data integrations to align with the rates

Mindtree will establish an Enterprise level governance and program management for LIBOR transition for Financial Institutions to access the risk and impact areas covering trading, Liquidity, Pricing, Risk valuation, Tax, Accounting, About Mindtree Legal Businesses, and Affiliated Technology Operations. The entire Transition roadmap covers: Mindtree [NSE: MINDTREE] is a global technology consulting and services company, helping enterprises marry scale with agility to achieve 1. Analysis across enterprise covering all Lines of business and geography competitive advantage. “Born digital,” in 1999 and now a Larsen & Toubro Group Company, Mindtree applies its deep domain knowledge to 300+ enterprise client engagements to break down silos, make sense of digital complexity and bring new initiatives to market faster. We 2. Setting up Centralized governance and program management structure enable IT to move at the speed of business, leveraging emerging technologies and the efficiencies of Continuous Delivery to spur business 3. Identifying the right stakeholders required to conduct the assessment, set methodology, impact analysis, and innovation. Operating in 18 countries and over 40 offices across the world, we’re consistently regarded as one of the best places to work, identifying the next steps from each business function. embodied every day by our winning culture made up of over 21,000 entrepreneurial, collaborative and dedicated “Mindtree Minds.”