How TriOptima Can Bring Its Optimization Service to Ice Libor Transition
In 2020, CCPs will enact the move from daily effective federal funds rate (EFFR) to secured overnight service rate (SOFR) based discounting. This is in accordance with the ARRC Paced Transition Plan, working towards the objective of widespread SOFR swap adoption.
To mitigate concerns that market participants have shared with TriOptima, triReduce has developed three solutions to aid the smooth adoption of SOFR based OTC swaps.
How TriOptima Can Help
CCP Discounting Switch Mitigation*
Reduce discount curve exposures ahead of OTC CCP discounting migration
Timing
Ahead of CCP discounting and price alignment switch
Submission requirements
- Trade submission
- Discount curve sensitivities to old & new curves
- Template trade valuations for risk replacement trades
Tolerance setting
None, TriOptima ensures that net risk is only reduced
Result
- Full terminations & notional revisions
- Trade revision
- Risk replacement trades (optional)
OTC Bilateral CSA Discounting Switch Facilitation*
Facilitate bilateral agreement of cash and risk compensation
Timing
Before and after CCP discounting and price alignment switch
Submission requirements
- Calculated discounting switch compensation amount per bilateral CSA
- Discount curve sensitivities
- Calculated basis spread between old and new discount curves
Tolerance setting
Market risk tolerances
Result
- Off-market zero spread basis swaps (submitted to clearing where relevant)
Benchmark Conversion
Compression of legacy OTC LIBOR swap exposure with conversion into alternative reference rate swaps
Timing
Before and after end of 2021
Submission requirements
- Trade submission
- Outright & basis risk
- Template trade valuations for risk replacement trades in illiquid maturities
Tolerance setting
Outright & basis risk limits
Result
- Full terminations & notional revisions
- Trade revision
- Risk replacement trades (optional)
*These are working proposals that are intended for discussion purposes and do not represent service offerings.
Learn more about our benchmark conversion process
Benchmark Conversion
All examples in this report are hypothetical interpretations of situations and are used for explanation purposes only. The views in this report reflect solely those of the author and not necessarily those of CME Group or its affiliated institutions. This report and the information herein should not be considered investment advice or the results of actual market experience.
