Reform of Interest Rate Benchmarks

Agenda Program Online
divider graphic
Available exclusively as online training
Price of online training
divider graphic

Attend this 2-day training course and learn about:

What has gone wrong with IBOR rates and why a replacement is needed?
The chosen the replacements - the new risk-free rates (RFRs)
The differences between IBOR rates and the new RFRs
The transition process from IBOR to RFRs for banks, companies and investors
How RFR-linked bonds work and the market for them?
The change in the world of corporate lending towards RFR-linked floating rate loans
The new RFR-linked derivative products and their pricing
The process of migrating legacy IBOR deals on to RFR terms
The latest ISDA consultation results on fallback rate calculation
This 2-day course offers an insight into the journey from IBOR rates to their new replacement benchmarks, from the perspective of banks, companies and investors.

The future of interest rate benchmarks is uncertain except for one thing: IBOR rates will be coming to an end in the next two years; and banks, companies and investors need to be ready. Rocked by a rate-rigging scandal and latterly by the absence of an underlying market, regulators have called time on IBOR rates and are pushing the world towards more robust alternatives.

This course examines the role IBOR rates have played in finance, growing from almost nothing 40 years ago to one of the most important numbers in world markets; a number that underpins 100s of trillions of USD of cash and derivative contracts.

On day one we look at the role of IBOR rates and what requirements their replacements need to satisfy, before examining the details of the regulatory-approved replacements - 'the risk-free rates (RFRs)'. We then consider the transition process that must be undertaken by banks, companies and investors to meet the regulators deadlines to be ready for the end of IBOR. Day one finishes with a look at the new RFR-linked bonds - how the bonds work and how they have been received by the market.

Day two starts by looking at the role of IBOR in corporate lending, and how the transition to RFR-linked loans might work. We consider the tricky subject of a forward-looking RFR rate and how one might be determined. We then progress to the world of derivatives and the details, and pricing, of the new RFR-linked futures and swaps markets.

We finish the course by considering the process of migrating legacy IBOR deals to RFR-linked terms - the contractual considerations and how we agree a fair transition price. We examine the latest ISDA consultation results and discuss the likely calculation process for fallback rates for legacy interest rate derivatives, as well as the P/L consequences.

Who should attend?
Corporate bankers - relationship managers and treasury managers.
Bank money market, bond and derivative traders and salespeople.
Investors - institutional investors, fund managers, private traders.
Company treasury managers and staff, accountants, risk managers.

Course methodology
The course consists of classroom-based training which combines formal teaching of concepts and technical content, with individual and group exercises to reinforce learning points.

Program of the seminar: Reform of Interest Rate Benchmarks

The seminar timetable follows Central European Time (CET).

09.00 - 09.10 Welcome and Introduction

09.10 - 12.30

IBOR and its replacement 'Risk-Free Rates' (RFRs)

  • IBOR
    • What was the original purpose of IBOR?
    • How is it set?
    • What went wrong?
      • Rigging scandal
      • Transaction drought
  • The necessity for replacement
    • Would a synthetic IBOR work?
      • How might it be calculated?
    • What problems should a replacement rate fix?
    • The regulatory pressure for replacement
      • UK FCA position on LIBOR
      • European Benchmarks Regulation (BMR)
      • US Alternative Reference Rates Committee (ARRC)
    • What regulatory tests does a new reference rate need to pass?
    • Can IBOR be replaced exactly?
      • Compromises necessary for replacement rate to be widely used
      • What happens to the much-used IBOR-OIS measure?
  • The regulatory-favoured RFRs
    • What are the chosen RFRs in each major currency?
  • Description of each RFR
    • Differences and similarities across currencies

12.30 - 13.30 Lunch Break

13.30 - 17.00

The transition from IBOR to RFR

  • Banks
    • What role does IBOR play within a bank?
      • Baseline funding rate
      • Input to funds transfer rate (FTP)
      • Key pricing benchmark for corporate lending
      • Key variable in interest rate derivative products
    • The transition from IBOR
      • Identifying what the future under RFRs will look like for all bank departments
      • The important transition decisions and operational requirements
      • Communicating the effects of the transition to clients
    • What will drive liquidity in the RFR bank-funding market?
  • Borrowers
    • What is the impact of RFRs on floating-rate borrowers?
    • What will drive the movement from IBOR-linked to RFR-linked borrowing?
    • Managing the transition for a corporate borrower
      • Market understanding and system changes
  • Investors
    • What are the requirements of floating-rate investors?
    • How will investors become comfortable with the transition away from IBOR?
      • Market development, liquidity and transparency, system requirements
  • How are regulators driving the transition from IBOR to RFRs?
  • In the post-IBOR world, what have we gained (or lost)?

Issuing bonds linked to the new RFRs

  • The market place for RFR-linked floating rate bonds
    • What do investors want?
    • What is the process of issuing bonds linked to the new RFRs?
    • Issuance to date by currency and issuer type
    • Investor reaction to RFR-linked floating rate bonds
  • Pricing of RFR-linked bonds
    • In theory, how should the RFR spread be priced?
    • The IBOR/RFR basis
      • What is the basis?
      • How is observed/traded?
    • How has the market priced and absorbed the bonds issued?
  • Bond term sheet details
    • Fixing source
    • Rate and settlement calculations

09.00 - 12.30

Corporate lending linked to the new RFRs

  • Why is IBOR so popular in corporate loans?
  • How would an RFR-linked corporate loan work?
  • The problem with the 'forward-looking term loan' nature of IBOR
    • How do we replace a 3-month rate with and overnight rate?
    • Why does the corporate loan market need a 'term' rate, e.g. 3-month ESTER?
    • How do we develop a 'forward-looking term rate' for RFRs?
  • Probable corporate loan characteristics post-IBOR
    • Fixing sources for term RFRs
    • Rate and settlement calculations
    • Pricing versus IBOR-linked equivalent
  • Pricing corporate loans
    • Replacing the credit and liquidity information from IBOR
    • Using RFRs to determine FTP rates

Derivatives referencing the new RFRs

  • Why is IBOR used in derivatives contracts?
  • Replacing IBOR in FRA, Futures and IRS trades
    • Existing market for overnight index futures
      • Fed Funds, EONIA, SONIA
      • Contract descriptions
    • New RFR futures contracts
      • Contract descriptions
    • What is the existing market for overnight index swaps (OIS)?
    • How would a swap market based upon new RFRs work?
      • Swaps versus daily reset/compounding
      • Swaps versus term RFR rates
      • How would term RFR resets work?
      • Basis trading versus IBOR swaps
    • Hedging using RFR-linked swaps
      • RFR-linked 'new issue swaps'
      • Asset swaps (fixed to RFR)
      • RFR-linked corporate loan hedging

12.30 - 13.30 Lunch Break

13.30 - 17.00

Migrating legacy IBOR deals

  • The case for migrating legacy IBOR deals to the new RFRs
    • Complications in floating-rate bonds and corporate loans
    • Does current documentation contain fall-back provisions to deal with the end of IBOR?
      • What are the common fall-back provisions?
  • Transition to RFRs for floating-rate bonds
    • What do borrowers and investors require from the transition and how can these requirements be met?
    • How do we price the replacement bond coupon to make the transition fair to both sides?
  • Transition to RFRs for corporate loans
    • What do companies and banks require from the transition and how can these requirements be met?
    • Dealing with the choice of term RFR and reset rate source
    • How do we price the replacement loan margin to make the transition fair to both sides?
  • Derivatives transition
    • The latest on the ISDA consultations
    • The likely look of a fallback rate
      • Backward- versus forward-looking
      • Historically calculated or market implied
      • Details: Mean versus median, lookback periods, weighting the average
      • Implications of using the fallback language on legacy deal P/L

Training catalogue in PDF
arrow-up icon