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As the market transitions from benchmark interest rates, such as
Interbank Offered Rates (IBORs), towards alternative Risk-Free
Rates (RFRs), we have been working hard to deliver
industry-leading RFR solutions to help our clients manage
this change which is now less than 12 months away.
Given the looming deadline, we thought it was a good time to
catch up with Robert Moeller, head of product for our RFR
solutions, to find out about the latest updates we've made to our
Wall Street Office (WSO) solution, and with Christel Heckmann,
Global Head of Loan Capital Markets at Danske Bank A/S, to hear how
preparations are going.
Q: Robert, what is the biggest challenge when it comes
to transitioning to RFRs and how are we addressing it in our new
solution?
The transition to RFRs represents a significant change in the
calculation of interest, from simple interest with fixed term rates
to compounding interest with daily rate changes. Our RFR solution
for Wall Street Office (WSO) introduces a new Rate Option Behavior
and Interest Methods. The new behavior will allow the application
to utilize a source agnostic Calculation Engine hosted in an Amazon
Web Services (AWS) cloud environment to calculate interest, giving
users instant transparency and confidence in their daily
accruals.
Q: Robert, will existing WSO customers still have access
to the same functionality in this new version of the
solution?
Absolutely. WSO's highly customizable features from trade
capture, asset and deal administration to reconciliation,
reporting, compliance and accounting have all been enhanced with
new RFR functionality, guaranteeing users the smoothest RFR
transition without disruption to critical processes and
services.
Q: Christel, how is Danske Bank managing the change
towards RFRs?
Agility in implementation of designed solutions for RFRs, close
cooperation among various financial product experts and timely
communication with stakeholders are the keywords in being able to
tackle the challenges that LIBOR transition presents to all
affected parties.
Danske Bank A/S acknowledges that the LIBOR reform will raise
many questions and it is difficult to provide an exhaustive list of
considerations. The WSO solution for loans helps tremendously to
minimize manual work and move to more streamlined and automated
processes.
Q: Robert, what are we doing to support clients'
reporting needs for the IBOR transition?
We've added a number of reporting options that allow users to
track RFR accrued and earned income, as well as RFR and IBOR
exposure in their holdings. Our WSO Administrator user interface
updates include the ability to quickly and easily review the daily
accruals on each position as well as review RFR asset details for
each loan held. HTML5 Activity Memos also display daily interest
accruals with sections for contract spread and base rate
accruals.
Q: Robert, does the RFR solution meet the Alternative
Reference Rates Committee (ARRC) guidelines?
We've been working to make these changes to WSO over the past
year and have been focused on ensuring these efforts meet the ARRC
vendor preparedness guidelines for technology and operations. We
are also part of a number of RFR tools and data sources aimed at
helping clients understand the value impact on the transition.
Q: Christel, IHS Markit also offers
afree RFR Calculator to help firms with detailed
compounding and simple interest calculations for SOFR, SONIA, ESTR,
TONAR, SORA, and SARON. How is it helping Danske Bank A/S to
address this significant industry transition?
The forthcoming transition from LIBOR to RFRs is a significant
challenge for banks and lenders from an operational risk
perspective, as the legacy systems are not designed to support the
new replacement benchmarks. Calculation of a compounded rate or
simple daily RFR can be complex and the key objective of the RFR
Calculator is to help one understand the impact of various market
conventions and methodologies that are still under discussion
across financial markets.
The IHS Markit RFR Calculator is not only a great educational
tool on the new methodologies and conventions applicable to RFRs,
but it also has all the vital features that the syndicated loan
market systems depend on, such as flexibility, consistency and
accuracy.
Q: Robert, how does our RFR Calculator compare to other
calculators on the market?
The Bank of England and the Sterling RFR Working Group recently
released their independent review of publicly available
calculators. The review highlights our strong capabilities compared
to the competition as we continue to add new functionality which,
in the past few months, has included simple in arrears
methodologies, floors, spread adjustment and lockout. To read the
full review
click here.
Q: And finally, Robert, if clients want to upgrade to
the latest version of WSO to manage the transition to RFRs, what do
they need to do?
Our RFR Calculator is available freely online through the
following link.
In order to upgrade to the latest version of WSO, clients should
get in touch with their client manager as soon as possible to
discuss the migration in more detail. Although the transition is a
year away, clients really need to start getting prepared now if
they are going to meet the deadline.
Posted 28 January 2021 by Robert Moeller, Executive Director, Product Management
IHS Markit provides industry-leading data, software and technology platforms and managed services to tackle some of the most difficult challenges in financial markets. We help our customers better understand complicated markets, reduce risk, operate more efficiently and comply with financial regulation.
