Software/IT

Learning Objectives

  1. Overview of Systems Challenges.
  2. What are the latest timelines for SOFR, ESTR, SONIA for different asset classes.
  3. What areas require the most focus for reconciliation pre-and-post post portfolio transition.
  4. What are the required static data changes for a multi-currency derivatives and fixed income portfolio.
  5. ARRC Practical Implementation Checklist for SOFR Adoption.
  6. LIBOR Transition Impact on Operational Risks.
  7. How does the move from term rates to overnight compounded rates impact performance.
  8. Incorporating SOFR and Fallback Characteristics and Behavior.
  9. Impact on Existing Model Libraries.
  10. LIBOR Transition Impact on Curves, Option Models, Cashflows and Accruals.

Course Framework

1. Overview of LIBOR and How We Got Here

  • Genesis of LIBOR, its composition and mechanics
  • IBOR as a global benchmark and foundational challenges
  • 2008 Global Financial Crisis and necessity of LIBOR replacement
  • Overview of the LIBOR BOOTCAMP program

2. LIBOR Transition Timelines and Challenges

  • Overview of new RFR benchmarks
  • Chronology of regulatory statements, actions and deadlines
  • Transition timelines
  • Regulatory bodies and committees
  • Scope and challenges of LIBOR transition

3. LIBOR Transition Management - Structure

  • Organizational and management structures of financial services organizations
  • Typical regulatory framework
  • Complexity of LIBOR transition
  • A reflection from a great global challenge of the century
  • Systemic components of LIBOR transition
  • Institution-specific components of LIBOR transition
  • Operating models for LIBOR project management

4. LIBOR Transition Management - Execution

  • LIBOR Transition Program Framework
  • Operational and Technology Readiness
  • Communication Strategy
  • Exposure Quantification and Management
  • Portfolio and Product Strategy
  • Contractual Remediation

5. RFR Indices Across All Currencies Worldwide and Its Conventions

  • Mapping from original LIBOR indices to the new RFR indices and how accrual and cashflow calculations are defined for RFR indices
  • Conversions for USD, EUR and GBP and what we can expect from the current OIS rates
  • Detailed description of new vanilla trade conventions for all currencies and indices
  • Detailed description of fallback trade conventions for all currencies and indices

6. Performance Considerations for Term and Overnight Rates

  • General consideration and setting the stage
  • Every swap will need daily 1D forward rate
  • Curve building with daily one-day forward rates and O(𝑛^2) complexity
  • Process changes for Daily resets
  • ESTR is a spread over daily 1D forward with time consuming date and holiday calculations in curve building

7. Derivatives - New Payment and Accrual Conventions

  • Differences among 1M SOFR, 3M SOFR, Eurodollar and Fed Fund future
  • Reasons for calculation differences
  • Differences of payment and accrual conventions among fixed income, lending and derivatives
  • Listing of reliable rate calculation engines for reconciliation of payments
  • Disappearance of the ability to reconcile first floating leg cash flow at trade inception
  • Lack of floating rate leg fixings on trade date and resulting reconciliation issues
  • Detailed examples of payment gap, lockout, observation shift and observation period shift
  • Reset in Advance SOFR option products

8. Market calendars and business day conventions

  • Business and Calendar Days
  • Holiday Calendar and Combinations
  • Roll Conventions such as Modified Following or Preceding
  • Resets, Interest Rate Periods and Payments
  • Examples with MM, Swaps, Interest Rate swaps and Non Deliverable Forwards

9. Hands-on New Payment and Accrual Conventions for FRN and Swaps for Reconciliations

  • Differences among 1M SOFR, 3M SOFR, Eurodollar and Fed Fund future
  • Reasons for calculation differences
  • Differences of payment and accrual conventions among fixed income, lending and derivatives
  • Listing of reliable rate calculation engines for reconciliation of payments
  • Detailed examples of payment gap, lockout, observation shift and observation period shift
  • Reset in Advance SOFR option products

10. Mechanisms of the Transition Fallback and its ISDA Adjustment

  • Relationship among pre-cessation, announcement, and trigger dates
  • Detailed fallback calculation algorithm
  • Routes for banks to transform current LIBOR portfolios

11. Dynamics of Interest Rate Swaps

  • Mechanics of interest rate swap
  • Analysis of typical term sheets
  • Swaps and derivatives markets governance – ISDA’s guideline framework
  • Swap settlement and clearing including central counterparties (CCPs)

12. End-to-end Valuation Workflow for Interest Rate Swaps

  • Collateral and Credit Support Annex
  • How to discount taking collateral into account
  • End-to-end valuation workflow for interest rate swaps

13. Cash Instruments

  • Scope and size of cash instruments and markets
  • Challenges specific to cash markets
  • Definitional Overview
  • Consent Solicitation
  • ARRC Recommended Fallback Language for all types of instruments
    • Floating Rate Notes
    • Bilateral Business Loans
    • Syndicated Loans
    • Securitization
    • Adjustable-rate Mortgages (ARMs)

14. New Model Risk Contributing Factors

  • Econometric Model Changes for the the new Risk-Free Rates
  • Backward and Forward Looking Term Rates and Shift of Effective Dates and Accrual Dates
  • FAS133 Hedge Effectiveness Testing Changes for new Benchmarks and Transition
  • Statistical Behavior of the new Rates and Credit Components
  • Model Risk Contributing Factors and Changes in Market Regime
  • New or Untested Model Type or Class

15. LIBOR Usage and Major Components of Required Model Changes

  • Compounding, Averaging and Daily Observation Impact
  • Curve and Collateral Dependency Revision across all Currencies
  • Move from HJM/LMM to FMM Model
  • Convex Accrual Function across all Asset Classes
  • Funding and Loan Index Recommendations to Account for Credit Component of LIBOR
  • Timeseries Considerations and Historical SOFR model to have data back to 1998

16. LIBOR single period in depth

  • Building blocks to define cashflows
  • Calendars
  • Rolling Conventions
  • Basis and Day Counts

17. USD SOFR single period in depth

  • Specific examples of SOFR confirmations and it’s parameters
  • SOFR cap conventions with reset in arrears
  • SOFR cap conventions with reset in advance and FED SOFR average indices
  • Overview SOFR, SONIA, ESTR, TONAR and SARON

Program Expert Faculty

Sanjay Sharma - LIBOR Bootcamp

Sanjay Sharma, PhD

Chairman GreenPoint Financial
Former CRO, RBC Global Arbitrage and Trading and Natixis, North America

During 2007-16 Sanjay was the Chief Risk Officer of Global Arbitrage and Trading Group and Managing Director in Fixed Income and Currencies Risk Management at RBC Capital Markets in New York. His career in the financial services industry spans over two decades during which he has held investment banking and risk management positions at Goldman Sachs, Merrill Lynch, Citigroup, Moody’s and Natixis. more…
Tim Glauner - LIBOR Bootcamp

Tim Glauner

Head of Capital Markets Global Solution Consulting for Americas, Finastra

Tim leads the Americas’ Capital Markets practice, Global Solution Consulting at Finastra, specializing in front-office, risk and quantitative areas in capital markets for broad asset class coverage including interest rate/inflation/FX/hybrid derivatives, fixed income including corporate and ABS/MBS securities. more…