ARRC Vendor Workshop June 28, 2019

The Alternative Reference Rates Committee (ARRC) hosted a vendor workshop recently at the Federal Reserve Bank of New York, which I attended and in this article I cover some of the key points from the workshop. Required SOFR interest rate characteristics Required trade economics and processing for SOFR-based derivatives and cash instruments Compound in arrears […]

Term Risk Free Rates from FX Forwards

The case for a Term Risk Free Rate (TRFR) to support the transition of cash instruments and products has been made by BoE and US ARRC over the past year. The TRFR is defined as a rate known in advance (similar to the current Libors) but based on RFRs in the relevant currency.
But the issue of how to construct an IOSCO-compliant TRFR has been a challenge for market participants and benchmark administrators.

USD SOFR Volumes June 2019

SOFR traded notional hit $50bn in monthly notional for the first time. We take a look at the details of some of the block trades that drove this notional higher. LCH data shows that the amount of risk traded has been between $4m and $10m DV01 during May and June. We show how our data […]

SEK STIBOR Reform

The Swedish Banker’s Association is looking to introduce an Alternative Reference Rate for SEK markets. At the moment, STIBOR is the underlying index for SEK swaps. There are on-going consultations to introduce a Risk Free Rate in Swedish markets. We take a look at the details. SEK Markets Today As it stands today, there are […]

LIBOR Fallbacks and Uncleared Margin Rules

LIBOR fallbacks and Uncleared Margin Rules are hot topics across the industry. We highlight the Basel guidance that any amendments to LIBOR contracts as a result of Benchmark reform will not trigger the need to post margin. This is important guidance to ensure the uptake of new RFRs is simple. Two of our big blog […]

SONIA and SOFR trading and Term Risk Free Rates

The use of Risk Free Rates (RFRs) such as SONIA and SOFR continues to grow. Volumes are increasing as described in recent Clarus blogs, see SOFR Volumes April 2019, SARON Activity and Growth in RFR Markets. But the development of a term market in RFRs is still in it’s early stages. Clearing House data shows […]

LIBOR Fallbacks Again

ISDA has launched a second consultation on LIBOR fallbacks. This extends the number of benchmarks covered to eight currencies. The big one this time is USD LIBOR, which is interesting because USD SOFR has a limited history available. Fortunately, the New York Fed has made a proxy USD repo rate available back to 1998. 78% […]

Portfolio Conversion of Libor to RFR trades

The closer we get to year end 2021, the more important the question of what will happen to existing LIBOR Swaps when and if LIBOR is no longer published or declared a non-compliant benchmark by the regulator. One approach is ISDA’s work on new Fallback language in the 2006 Definitions (see Libor Fallbacks: What will […]

Potential Mechanics of Cross Currency Swaps and RFRs

As references to Libor declines ahead of 2021 and the use of Risk Free Rates (RFRs) increases, derivatives will have to adapt. So in this blog I will look at the cross-currency swaps and the choices needed to move to RFRs. Cross currency swaps can behave quite differently to single currency swaps and I will […]