This 1-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.
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 regulator's 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. We then will be 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 on 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.
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.
What will you learn
Attend this 1-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
Main topics covered during this training
- IBOR and its replacement ‘Risk-Free Rates’ (RFRs)
- Issuing bonds linked to the new RFRs
- The transition from IBOR to RFR
- Corporate lending linked to the new RFRs
- Derivatives referencing new RFRs
- Migrating legacy IBOR deals
IBOR and its replacement ‘Risk-Free Rates’ (RFRs)
- IBOR - What was the original purpose of IBOR, how is it set and what went wrong?
- The necessity for replacement
- The regulatory-favoured RFRs
- What are the chosen RFRs in each major currency?
- Description of each RFR
The transition from IBOR to RFR
- What role does IBOR play within a bank?
- The transition from IBOR to RFRs
- What will drive liquidity in the RFR bank-funding market?
- 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
- What are the requirements of floating-rate investors?
- How will investors become comfortable with the transition away from IBOR?
- 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
- How has the market priced and absorbed the bonds issued?
- Bond term sheet details
- Fixing source
- Rate and settlement calculations
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
- New RFR futures contracts
- What is the existing market for overnight index swaps (OIS)?
- How would a swap market based upon new RFRs work?
- Hedging using RFR-linked swaps
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?
- 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 final design of a fallback rate
Mark spent 10 years as an FX and interest rate derivatives trader in London, HK and New York before moving into financial training, where he has spent the last 9 years. His trading experience spans vanilla and exotic products having run profitable businesses across the derivatives product spectrum.
Mark graduated from the University of Bristol with a first-class degree in Aeronautical Engineering. He had a brief stint as an aerodynamicist working on military aircraft design for BAe Systems, before moving into finance, first with Deutsche Bank and then RBS.
After leaving finance Mark bought, ran and subsequently sold a retail business; in the process developing a first-hand understanding of company valuation, accounting, as well as company financing and risk management.
Mark uses his experience in financial markets and the corporate world to run engaging training courses across both the markets and corporate finance disciplines.
Companies Mark has trained include: HSBC, JP Morgan, Barclays Bank, Deutsche Bank, Rabobank, Morgan Stanley, Standard Chartered Bank, ING, RBS, Saudi Hollandi, Cantor Fitzgerald, National Bank of Kuwait, Sumitomo Mitsui Banking Corporation, Société Générale, European Bank of Reconstruction and Development (EBRD), RBC, UniCredit, Commerzbank, just to name a few.
- Corporate bankers - relationship managers and treasury managers
- Bank money market, bond and derivative traders and salespeople
- Bank middle office and operations staff
- Investors - institutional investors, fund managers, private traders
- Company treasury managers and staff, accountants, risk managers
Venue to be announced shortly.