The International Swaps and Derivatives Association announced that it has begun a comprehensive analysis of the issues and potential solutions related to transitioning financial market contracts and practices to new alternative risk-free rates (RFRs). The analysis will include a targeted global survey of buy- and sell-side firms and infrastructure providers to identify the means by which market participants can effectively implement regional benchmark transitions, as well as highlight possible challenges.
The new report will consider how interbank rates, or ‘IBORs’, are currently used across financial markets, including in derivatives, loans, bonds and mortgages. It will also explore potential adjustments required to transition from IBORs to RFRs for both new and existing contracts. This may include documentation issues, the potential for value transfer, threats to market liquidity, the requirement for term fixings and differences in credit spreads between existing and new rates, among other topics. In addition, the report will outline a roadmap of any identified solutions, along with a timeline for actions required to implement them.
The report will include feedback and input from all sectors of the market, including banks, mortgage providers, asset managers, non-financial corporations, regulators, central banks and trade associations. A global consultancy firm will be commissioned to run the research, which is expected to be published in the first quarter of 2018. ISDA serves as an observer to the key public-private sector risk-free rates working groups overseen by the Bank of Japan, Bank of England and US Federal Reserve.