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Bringing Optimization Services to ICE LIBOR Transition

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