IBOR Transition Market structure

LIBOR®, ICE LIBOR® and ICE Benchmark Administration® are registered trade marks of IBA and/or its affiliates. USD ICE LIBOR, and the registered trade marks LIBOR, ICE LIBOR and ICE Benchmark Administration, are used by LSEG with permission under licence by IBA. The Fallback Rates are not sponsored, endorsed or provided by IBA or any of IBA’s affiliates.

1. When we say “system” here, we also refer to email and spreadsheets (i.e. “workarounds”).
2. Creating a single, real-time system that can sufficiently support the front, middle and back office requires a significant investment of time, effort and expense—one that increases proportionately with the size and complexity of a firm’s infrastructure.
3. Modern IBOR and ABOR systems come with features that facilitate improved transparency and ensure compliance.
4. They include expectations of future level of interest rates but do not include any interbank credit premium.
5. One user wants it one way, while another user says that this is wrong, and wants it another way.

The definition of an Investment Book of Record

Yet, both are very different and serve quite distinct purposes within private equity. Further, data discrepancies can arise between the two systems, leading to inefficiencies and potential risks. For example, moving from an overnight position refresh of a front office system to an intraday, near real-time or real-time one may require development in the incumbent system to take those refreshes. Having a clear understanding of what an IBOR function should offer and how it will fit into an organisation’s operations, will make an IBOR a key component in mitigating risk across many organisations.

Improved transparency and compliance

The shift from IBORS could change how banks set interest rates on loans and adjust maturity rates, influencing unsecured lending markets and floating rates. Financial regulation is leading to the replacement of interest rate benchmarks like LIBOR with alternative risk-free rates. It’s important for HSBC clients to stay updated on regulatory milestones and timelines related to the IBOR transition in order to prepare effectively and mitigate any potential disruptions or risks. The IBOR transition is a global effort that involves various jurisdictions, including the US, UK, Switzerland, Eurozone, and Asia.

Government & Public Services

Common problems include missing data intraday, such as predictable cash transactions (custody fees, audit fees etc) as well as one-off cash transactions. The latter include cash injections from clients (deposits), as well as liquidation proceeds, class action damages etc. Each book of record has position views and underlying transactions that overlap strongly with all the other books of record. These must be maintained, so the more BORs there are, the greater the data management workload becomes. An ABOR is often referred to as “the books and records of the business” because it is the basis for statutory submissions and is the target for statutory audit.

The Investment Book of Record (IBOR) is a centralized system that serves as a real-time repository or database of investment data. This data includes portfolio holdings, performance metrics and investment transactions — all of which are continuously updated to reflect the latest activity. PBOR is effectively a superset of IBOR in that it is more granular and covers greater ground. The supplement will amend ISDA’s standard definitions for interest rate derivatives to incorporate robust fallbacks for derivatives linked to certain IBORs, with the changes coming into effect on January 25, 2021. From that date, all new cleared and non-cleared derivatives that reference the definitions will include the fallbacks. The transition process includes upgrading operational processes, pricing models, and data models.

Data quality is achieved by delivering data that is complete, accurate and timely. For an IBOR, “data” refers to transactions, i.e. anything that affects positions or cash. It could be a deposit, a coupon payment, an execution in the market, a bond RFQ, etc. Another way to think about the live-extract IBOR, compared to the other approaches, is that it’s not batch-based but rather event-based. An event, be it an order, a cash payment or whatever, can come into the event-based system at any point during the day.

Clients should review their portfolio carefully and consider seeking independent professional advice (legal, tax, accounting, financial or other) as appropriate. Nordea encourages clients to follow the latest market developments on the IBOR transition, such as through participation in initiatives run by industry bodies, and to seek own professional ‎thinktrader on the app store advice on legal, financial, accounting and tax matters. IBOR reforms may impact the HSBC products and services you currently use and those we may provide in the future. The content of this page reflects HSBC’s understanding of the reforms as at 28 April 2023.

Such systems have been in production for a while now, and more and more Asset Managers are adopting them. By documenting every action taken, audit trails enhance transparency, allowing firms to track changes and understand the flow of information. This most traded сryptocurrency pairs – best pairs to trade capability is vital for accountability, as it enables firms to pinpoint the source of any discrepancies or errors that may arise. A unified IBOR-ABOR platform bridges this gap by ensuring that all teams have access to the same data in real-time. A unified platform synchronizes information flow between IBOR and ABOR to ensure stakeholders are working with the same accurate and consistent data.

The transition has significant implications for market structure and requires attention from market participants and regulatory bodies. This has raised concerns about potential misconduct and lack of trust in the financial markets. Additionally, IBORs are based on interbank lending rates, which may not accurately reflect current market conditions or adequately capture the risks involved. The corporate bond yield curve Alternative Reference Rates Committee (ARRC) Progress Report, published March 31, 2021, estimated there will be approximately $5tn USD LIBOR referencing contracts in business loans, consumer loans, bonds and securitisations maturing after June 2023. Many of these exposures have adopted ARRC-recommended fallback language that includes a pre-cessation trigger and as of the first interest reset date after June 30, 2023, will transition to an ARRC recommended rate.

Moreover, built-in compliance tools ensure that firms adhere to regulatory standards without relying heavily on manual processes. These tools automatically check for compliance issues and flag potential violations before they become larger problems. Technology automates the integration of data from various sources, such as custodians, trading systems, and portfolio management platforms.