Many firms still not prepared for US dollar Libor transition
With less than a year to go until the cessation of Libor for US dollar-denominated contracts, market participants seeking a smooth transition face a number of challenges.
At a Benchmark Strategies Forum meeting back in March, International Swaps and Derivatives Association chief executive Scott O’Malia noted that while Secured Overnight Financing Rate (Sofr) has changed trading conventions in the interdealer market for linear US dollar swaps, cross-currency swaps and non-linear derivatives, it was still important to encourage participants in other market segments and geographies to switch from US dollar Libor.
Since then, volatility in capital markets, specifically lack of deal activity in the leveraged loan market where issuers would normally revisit existing debt, has slowed progress.
US financial institutions must get their operations in order so that the operational legacy of Libor doesn’t linger, says Yann Bloch, vice-president product management Americas at NeoXam.
“This means ensuring the most up-to-date technology is in place to easily be able to automatically transfer thousands of Libor-linked contracts over to the new risk-free rate,” he says.
However, there is no one-size-fits-all approach with respect to data or technical functionality for the transition, says Tal Reback, director at KKR with responsibility for leading the firm’s global Libor transition.