RandomGuy
07-26-2021, 05:22 PM
LIBOR has had a couple of scandals about price fixing. Be interesting to see if this sticks.
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Alexandra Harris
Mon, July 26, 2021, 4:32 PM
(Bloomberg) -- U.S. regulators are wagering a major shakeup of the multitrillion-dollar interest-rate swaps market is just what’s needed to wean Wall Street off the London interbank offered rate for good.
In a key development in the shift from the discredited benchmark, beginning Monday, swaps desks will switch from Libor to the Secured Overnight Financing Rate when entering into most interdealer trades, effectively changing how they hedge their interest-rate risk.
The move is designed to ignite a flurry of activity in derivatives tied to SOFR, ensuring enough liquidity to help establish a forward-looking term structure, a critical holdup that’s prevented various cash markets from embracing the rate. It’s the first step in a renewed effort to push firms toward the benchmark ahead of the year-end deadline to ditch Libor for new transactions, and comes amid increasing competition from a slew of new reference-rate providers seeking to carve out their own slice of the post-Libor landscape.
This “is a huge deal,” said Thomas Pluta, global head of linear rates trading at JPMorgan Chase & Co. “We’ve been surprised at how slow the uptake in SOFR derivatives has been to this point, so this is exactly what the market needs.”
The shift will see SOFR replace Libor as the floating leg on all linear swaps, swap spreads and curve trades in the interdealer market, where financial institutions like JPMorgan and Goldman Sachs Group Inc. hedge the interest-rate exposure they incur from transactions with clients.
The best-practice recommendation from the Commodity Futures Trading Commission’s market risk advisory committee doesn’t affect Libor-SOFR basis trades, meaning firms can still hedge their risk via Libor if they choose.
Still, it will create more volume in SOFR derivatives by definition, said Bart Sokol, a managing director for U.S. interest-rate swap trading at Barclays Plc. That should narrow bid-ask spreads, encourage banks to migrate end users over to SOFR, and ultimately facilitate the liquidity the Federal Reserve-backed Alternative Reference Rates Committee has said it wants to see prior to endorsing a term rate.
...
https://finance.yahoo.com/news/libor-final-days-begin-push-100000741.html
-------------------------------------------------------
Alexandra Harris
Mon, July 26, 2021, 4:32 PM
(Bloomberg) -- U.S. regulators are wagering a major shakeup of the multitrillion-dollar interest-rate swaps market is just what’s needed to wean Wall Street off the London interbank offered rate for good.
In a key development in the shift from the discredited benchmark, beginning Monday, swaps desks will switch from Libor to the Secured Overnight Financing Rate when entering into most interdealer trades, effectively changing how they hedge their interest-rate risk.
The move is designed to ignite a flurry of activity in derivatives tied to SOFR, ensuring enough liquidity to help establish a forward-looking term structure, a critical holdup that’s prevented various cash markets from embracing the rate. It’s the first step in a renewed effort to push firms toward the benchmark ahead of the year-end deadline to ditch Libor for new transactions, and comes amid increasing competition from a slew of new reference-rate providers seeking to carve out their own slice of the post-Libor landscape.
This “is a huge deal,” said Thomas Pluta, global head of linear rates trading at JPMorgan Chase & Co. “We’ve been surprised at how slow the uptake in SOFR derivatives has been to this point, so this is exactly what the market needs.”
The shift will see SOFR replace Libor as the floating leg on all linear swaps, swap spreads and curve trades in the interdealer market, where financial institutions like JPMorgan and Goldman Sachs Group Inc. hedge the interest-rate exposure they incur from transactions with clients.
The best-practice recommendation from the Commodity Futures Trading Commission’s market risk advisory committee doesn’t affect Libor-SOFR basis trades, meaning firms can still hedge their risk via Libor if they choose.
Still, it will create more volume in SOFR derivatives by definition, said Bart Sokol, a managing director for U.S. interest-rate swap trading at Barclays Plc. That should narrow bid-ask spreads, encourage banks to migrate end users over to SOFR, and ultimately facilitate the liquidity the Federal Reserve-backed Alternative Reference Rates Committee has said it wants to see prior to endorsing a term rate.
...
https://finance.yahoo.com/news/libor-final-days-begin-push-100000741.html