Numerix: LIBOR transition challenged by ARR liquidity, data and tech systems

To better understand the industry’s level of preparedness for switching from LIBOR to ARRs, Numerix conducted a global
survey of financial services market participants. Numerix is a provider of capital markets technology for trading and risk management for 700+ financial services organizations worldwide.

The results of the survey show that lack of preparation certainly does exist, but findings also suggest the challenges hampering LIBOR transition efforts vary considerably.

A summary of key findings:

Majority of firms generally unprepared for the transition: The transition from LIBOR to ARRs is gaining momentum, but many firms are struggling. Only 28% of survey respondents consider themselves “Prepared” for the LIBOR transition. Breaking this one result down further, only 23% of banks indicated they have a mature transition plan in place, while 37% of firms in advisory/consulting indicated they are well positioned for the transition.

Most firms do not have the necessary technology or data systems: It is important to know and understand the enormity of the scale of the global migration to ARRs. It will require software systems to be updated. However, by combining the last two results, we see that 71% of firms responding to this question have not yet built or acquired the required technology and data systems. The inability to address the technology challenges related to the transition from LIBOR to ARRs could very well result in material adverse consequences for financial market participants.

Top LIBOR transition challenge is lack of ARR liquidity: It is not surprising that a majority of survey participants selected the lack of ARR liquidity as being the primary challenge to transition efforts. Sufficient liquidity build-up is required to facilitate the transition to the new ARRs. While liquidity is developing, there is still a way to go.

Most firms think LIBOR deadline will be delayed but not discontinued: The fact that almost half of respondents believe the end of LIBOR will be delayed represents the market’s overall widespread lack of acceptance that LIBOR will actually cease to exist by the end of 2021. The reasons — or excuses — for firms to think this way can be numerous, such as: the arrival of COVID-19 making the challenge of disentangling from LIBOR all the more problematic; not having the people or resources to deal with the transition; not being in a position to hire the expertise to be able to expedite the transition; or because of the significant number of institutions that are seriously behind in the progress of their preparations.

Access the full report

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