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Markets

Many aware of issues related to switch from IBOR, but far fewer have made plans

Far more market participants and providers are aware of transition issues related to the move away from interbank offered rate-based benchmarks than have plans to prepare for any changes, according to a report Monday from several industry groups.

The report, based on a survey of 150 banks, investors, law firms and derivative infrastructure providers, showed 87% are concerned about their exposure to trade-based IBORs, such as the London interbank offered rate, and the switch to alternative risk-free rates — the theoretical rate of return of an investment with zero risk — with 78% expected to trade with alternative RFRs within the next four years.

However, only 53% of respondents have started internal discussions on the transition to alternative RFRs, with 11% budgeting for the change and 12% developing a preliminary project plan.

Also, 72% of respondents said there should be broad industry adoption of the alternative RFRs, and 64% said market participants should develop liquidity in over-the-counter derivatives and futures referencing the RFRs.

The reform of IBORs was recommended in 2014 by the Financial Stability Board in response to attempted market manipulation and false reporting of global reference rates.

The survey was included in a report from the International Swaps and Derivatives Association, the Association of Financial Markets in Europe, the International Capital Market Association, and the Securities Industry and Financial Markets Association and its asset management group.