SOFR, Ameribor, BSBY, SONIA – what will replace LIBOR as the industry-standard risk free rate becomes obsolete? In a recent Bloomberg article, Lananh Nguyen and Alex Harris detail both J.P. Morgan and Bank of America’s execution of their first swap trade this year that test two potential replacements for LIBOR, “with one side tied to BSBY” (Bloomberg Short Term Bank Yield) and the “other side…linked to the Secured Overnight Financing Rate” (SOFR).1
Yet, a recent WSJ article also points to Ameribor as a potential challenger to SOFR, the presumed favorite among other large banks and regulators. Ameribor offers “one-month and three-month borrowing rates” which may be better suited for lenders that are small to medium size that may not have access to repo markets.2
What’s the ideal approach going forward? As both articles note, firms are beginning to prepare, and test transactions tied to different rates. Now regulators and firms need to determine the best tactic to moving off LIBOR, but what will this mean for your operations functions?
It isn’t controversial to suggest the transition away from LIBOR will have a significant impact on operational workflows. The goal is to have a seamless conversion to other risk free rates, and to do this firms will need to identify and define their needs, as well as understand the ARRC and LSTA guidelines –particularly as new issuances should cease usage of LIBOR at the end of 2021.
The current focus for many firms is to shift from LIBOR, but to address this firms will need solutions tailored to their needs and requirements. Geneva®, our portfolio management and accounting platform, is widely used by alternative investment firms, global asset managers, and fund administrators around the world. For nearly two years our Geneva development teams have worked in collaboration with clients, ARRC, and the LSTA to support a seamless transition.
Within the framework of the ARRC and LSTA guidelines, we are addressing the tangible issues our clients’ have expressed, based on the asset types held, rather than attempting to account for hypothetical circumstances. With recent release updates and additional functionality incorporated, Geneva is prepared to support our clients’ full transition from LIBOR, and those who select to upgrade can expect the core functionality necessary to begin the transition to SOFR across all fixed-income security types.
As banks and investment managers continue to test new transactions tied to different rates, Geneva clients can rest assured that SS&C Advent is at the forefront of developments and remain committed to delivering first-class service and world-class products.
Learn more about how Geneva can help with our guide for ensuring operational and technology readiness with Geneva, or request a demo.
- Nguyen, L.; Harris, A. Bloomberg. Bank of America, JPMorgan Enter Swaps Trade Tied to New Libor Replacement. (2021, May 3). Retrieved from: https://www.bloomberg.com/news/articles/2021-05-03/bofa-jpmorgan-enter-swaps-trade-tied-to-new-libor-replacement?sref=fwRIHMua
- Verlaine, J. WSJ. Libor-Replacement Competitor Gains Strength From New Offering. (2021, April 19). Retrieved from: https://www.wsj.com/articles/libor-replacement-competitor-gains-strength-from-new-offerings-11618833813