Co-hostLead Sponsor

Gold Sponsor

Philippe Dirckx
Managing Director – Head of Fixed Income
ASIFMA2

Co-host

Lead Sponsor

Gold Sponsor

Agenda:Time(SGT/HKT)

Session10:00 – 10:15

Welcome Remarks• Philippe Dirckx, Managing Director – Head of Fixed Income, ASIFMA• Mrs Ong-Ang Ai Boon, Director, The Association of Banks in Singapore

10:15 – 10:35

Keynote Address• Leong Sing Chiong, Deputy Managing Director (Markets & Development),
Monetary Authority of Singapore

10:35 – 10:50

Impact of SORA Transition on Singapore Banking Industry and Key Considerations for a
Smooth Transition• Andrew Ng, Group Executive, Head of Treasury Markets, DBS

Agenda:Time(SGT/HKT)

Session

10:50 – 11:35

SORA Product Presentations (Case Studies)• Ryan Page, Solutions Specialist, Refinitiv• Wolfram Hedrich, Partner, EY• Gaurav Kapoor, APAC Head – Risk & Valuations, Bloomberg L.P.

11:35 – 11:45

Data Transformation/Implementation• David Rickard, Global Director, Trading Desktop – FX/MM & Derivatives, Refinitiv

11:45 – 12:00

Accounting and Tax Issues – Top 10 to Tax Issues to Keep Front of Mind
• Rajesh Bheemanee, Partner, Financial Services Transfer Pricing, Ernst & Young
Solutions LLP• KwanEng Chew, Partner, Quantitative Analytics and Treasury Services, Ernst & Young
Solutions LLPAgenda:Time(SGT/HKT)

Session12:00 – 12:40

Banking Panel on Legal/Conduct Issues• Glenn Foo, Partner, Allen & Gledhill• Kok Chee Wai, Partner, Allen & Gledhill• Francis Mok, Co-head of Financial Services Department, Allen & Gledhill• Joyce Lai, Executive Director, Head, Legal & Compliance, Treasury & Markets, DBS• Lyn Lee, Senior Vice President, Group Legal & Regulatory Compliance, OCBC
• Poh Mai Fuang, Capital Markets Legal Counsel, OCBC
• Chan Mun Bin, Head, Legal, FXRC & Financial Markets, ASA, Standard Chartered• Koh Hwee Keow, Senior Vice President, Group Legal & Secretariat, UOB• Lam Chee Kin, Managing Director & Head, Group Legal, Compliance &Secretariat, DBS (moderator)

12:40 – 12:45

Q&A

12:45 – 12:50

Closing Remarks
Vernice Moh, Managing Director, ASEAN, Refinitiv

Get involved by:

Asking a question anytime via the “Q&A” box on your tool bar

7

Co-host

Lead Sponsor

Gold Sponsor

Welcome Remarks:

Mrs Ong-Ang Ai Boon
Director
The Association of Banks in Singapore

9Co-host

Lead Sponsor

Gold Sponsor

Keynote Address:

Leong Sing Chiong
Deputy Managing Director (Markets & Development)
Monetary Authority of Singapore

11Co-host

Lead Sponsor

Gold Sponsor

Impact of SORA Transition on Singapore Banking Industry and Key
Considerations for a Smooth Transition :Andrew Ng
Group Executive
Head of Treasury Markets
DBS

13

Co-host

Lead Sponsor

Gold Sponsor

SORA Product Presentations (Case Studies):

Ryan Page
Solutions Specialist
Refinitiv

Wolfram HedrichPartner
EY

Gaurav Kapoor
APAC Head – Risk & Valuations
Bloomberg L.P.
15

SORA Product Presentations (Case Studies):

Ryan Page
Solutions Specialist
Refinitiv

16

LIBOR Transition
Case Studies

17

Widespread impact for market participants18Market Data vendor – product impacts and enhancements
Calculators
Analytics•Zero Coupon basis free curves using RFRs
•Fallback Curves Applied•LIBOR-OIS curves•Bootstrapped OIS curves for discounting/projecting cashflows

Search/Monitor•New bond issuance linked to RFRs
•Existing bonds and derivatives linked to IBORs/RFRs•General landing page for all RFR/IBOR transition related activity

Onboard 3rd Party Data
Reference Data

Refinitiv Benchmarks

19•Ability to use RFRs to price e.g. coupon calculations for FRNs, Swap price calculator•Compound RFR Calculator Tool
•Scenario Analysis Tools e.g. in Multi Asset Portfolio app MARVAL•New RFRs and term rates, new compound indices of RFRs
•Broker OIS Data
•Interest Rate Futures & Options•IBOR fallback benchmarks•New fields to easily identify LIBOR linked securities•Fallback language and triggers captured in bond notes•Capture Bond Covenant and Transition Changes•Term Rates Based on OIS data in select markets•Compound Indices for major RFRs using market standard methodologies•SONIA forward term rate offeringClient case-study … LIBOR Transition approach•

Our client is the largest bank in its domestic market and is principally engaged in the provision of banking and related
financial services. The Bank mainly operates three segments, including Corporate Banking segment, Personal Banking
segment and Capital Markets segment.

•

As a result, this client has a wide range of products that is impacted by LIBOR transition- Derivatives (market making Foreign Currency Interest Rate Derivatives),- Cash Products (Corporate Loans & Personal Loans)- Bonds (Floating Rate Notes)•

The client had a LIBOR transition workforce, comprised of users from different departments including Market Risk team,
ALM team, Legal team and Technology team.

•The engagement took the shape of a consultative collaboration, with the overall assessment of effort being estimated at
80% of the time being spent on understanding what the transition meant to the client’s operations\workflows and 20%
on the Refinitiv solutions that were complimentary to the recommended target state.

20

Overall Recommendation Diagram – client product perspective

21

Derivatives & Cash-Based on LIBOR

Derivatives- Based on RFR

Cash Products- Based on RFR

ISDA – Fallback rate

Compounding in Arrears

Forward-looking Rate
(Term Rates)

After LIBOR Cessation,
Existing LIBOR products

Scenario

Products

Prevailing Rate

22

2

Cash

Derivatives

ISDA Fallback rate

Forward looking
rate + Spread

Other Official
Reference Rate +SpreadISDA
Fallback rate

Refinitiv’s Data and Solution for IBOR transition
RFR Data Sets

Summary

RFR Rates

Risk Free rates (RFR) are recommended alternatives to Libor. These are overnight rates e.g SORA, SOFR,SONIA, ESTRRFR Term Structures

Forward looking rates administrated by benchmark administrators – including Refinitiv Term Structure for
SONIA. Potential replacement for LIBOR rates.

RFR Compounded Rates

23

Daily compounded rates (e.g. 30D, 60D, 90D) published by central banks on RFR. Can be used in
cashflow/coupon calculations.

ISDA Fallback Rates

Fallback rates required for ISDA OTC Derivatives. Fallbacks are not intended to be a primary means ofmoving from IBORs to RFR – they are required to determine fallbacks for existing OTC derivative
contract.

RFR Market Data (Swaps,
Basis, Caps, Swaptions)Market Data Pricing in new Swaps products - required for price discovery, input to curves and analytics.
Exclusive Tradeweb data, and price data from all Inter-dealer Brokers.

RFR Zero Curves

Zero curve replacements for existing Libor curves used to pricing new derivative products. Available
through OISZERO.

RFR Bonds and Loans

FRNs issued with RFR underlying. Coupon calculation methodologies have lookback features - as RFRs
are overnight not forward looking.

Access across the Enterprise24

Co-host

Lead Sponsor

Gold Sponsor

SORA Product Presentations (Case Studies):

Wolfram HedrichPartner
EY

26

SOR to SORA transition
SORA Products & Customer Communication
2 February 2021

Current Challenges in Bank IBOR ProgramsMarket is still largely in ‘wait & see’ mode – but don’t wait too long!

Current issues

Status•Banks’ IBOR programs made a lot ofprogress over last year
•
•
•
•

•

New product roll-out (Derivatives leading
Cash)Communication strategies
Systems capabilities
Fallbacks for derivatives - ISDA protocol

Important updates to final transition
timeline expected in coming weeks(IBA/FCA)
•
•

1

2

3

USD LIBOR link to SOR important for local market
Possible impact on SORA update•

Market still working through exact
mechanics of restructuring/repapering
options•

Banks have started outreach to clients, with
mixed success

4

5

Fragmentation - lack of common standards and templates means lots oflegal and systems work to cater to a huge tree of rates calculation
alternatives

Regulatory Uncertainty - diverging timelines means that banks andcustomers become more hesitant to change

Low Adoption - customers have a ‘wait & and see’ attitude;
rate compression doesn’t help since pricing looks less attractive

Value Transfer - Need to understand and handle value transfer: both
external (to/from client) and internal (FtP)

Client Engagement - how, when and what to offer in order to minimize
complexity, conduct risk and value transfers? How will you negotiate withcustomers?

Client Engagement
Where should you be right now?
Expected Status for ‘GREEN’ in Q1 2021
1

Client Exposure andContract Remediation
Scoping & Reporting2

Client strategy► Centralized view of client transition data available, updated for possible cessation timeline changes✓✓► Dashboard reporting live on transition progress e.g. by client, exposure, contractual progress✓► Client strategy by product and / or client cohort for transition prepared✓► MI and visualisation► Assessment of risk for each scenario (above) done; mitigants for all risks identified and a

✓

layer
► FAQ document

greed remediation plan
► Developed pricing strategy (ARR, spreads, floors) and simulated impact of rate scenarios on

✓
✓

✓
✓
► Summary and detailed playbooks for front-line teams prepared, training given to teams, escalation pathways identified✓► Templates / amendments agreed for impacted contracts✓► Integration of end-to-end workflow tooling and method to capture fallback status and reporting✓► Population for restructuring or revised fallback repapering identified

Contract Strategy,
Scoping and Execution

4► General education docs / memos and FAQs prepared; regular newsletters shared internally /externally► Governance process to manage client escalations established

Client Communication/
Engagement

5

Internal Communication► Workflow Tools tomanage client
communications► Ability to deliver analytics and supporting scenarios to facilitate commercial discussion ready

SORA versus IBOR products► New Product Approval process defined3

Accelerators in use► Process & tooling to deliver client specific packs driven by client strategy discussions► Ongoing client meetings held with Coverage Teams/Sales✓✓✓► Initial contract negotiation to kick-off: Q1 2021 with clear coverage across all IBOR impacted positions✓► Training program and training material rolled out✓► Audit trail / workflow tooling live✓

► Post-sale outcome reviews ongoing✓► Regulatory horizon

scanning and insight► Workflow Tools tomanage client
communications► Legal Contract Tools► Training platform

Case Example: Information for Clients
Overview of the core client information to be provided in the transition
1

2

3

4

IBOR Overview, Agenda and Objectives

IBOR Impacted Product Holdings

Transition Options and Financial Impact
Assessment

Timeframes, Contract Renegotiations
and Next Steps

Client receives potential transition options fortheir impacted products and expectedtransition dates:

Client receives information regarding next
steps:

Client receives key information on IBOR
context and transition:

Client receives detailed list of their holdings
with bank:•

Introductory page with the contents and an
overview of IBOR.

•This could include background on why thetransition is taking place, when productcease to be offered, the timelines,
regulatory commentary, and links••

List of the IBOR related product holdings in a
table

•

Level of detail in the table may be subject tochange depending on the client cohort /product types• Take up transition option• Take no action and rely on fallback•✓ Consider level of detail required forbackground information✓ Tailored for client segments✓ Include timeframe to cease IBOR
product offering✓ Think through what the ‘minimum viable
product’ of data is needed to provide toclients to allow recognition of theirportfolios/trades✓ Consider the appropriate entity levelcommunications may be sent to (e.g.
supergroup level for most but legal entityand branch levels may need to beconsidered for certain clients)✓ Consider a separate approach ofcommunications (such as notification only)
for clients that only have trades/facilities
expiring before 2022

Potential transition options for the client’s
impacted products include;•

The next steps and timeframes, including
the contact details for responses.

•

Contract / documentation details aligned to
impacted products and next steps for renegotiation• Choose to exit the product
The front book offering available (e.g.
compounded SONIA, Fixed Rate)✓ Suggested detail to include incommunications;✓ Historical comparison between LIBOR
and Compounded SONIA✓ Comparison of credit adjustment
spreads✓ All in rate impacts across proposed
alternatives✓ Cash flow impacts on a historical andforward looking basis✓ Include disclaimer/non-reliance language✓ Consider how process/approach will differ
per client cohort;✓ Multiple touchpoints for clients with low
IBOR transition awareness✓ High touch approach for clients withgreater IBOR transition awareness✓ Reflect on mechanism to use for client
queries, options include;✓ Managed through RMs✓ Central query team

✓ Consider appropriate hand-offs to Legal tosupport contract negotiations and productteams to support next steps

Case Example: Tailored Communications
Information provided and process will differ depending on client sophistication
Client Sophistication► Low► HighClient Segmentation► HighOverall, there may be an increased focus onproviding information on the background to
the IBOR transition and differences in therate options. Clients may require 1:1
discussions and follow up to discuss theirconcerns and questions.

Product(L1)

Linked► Product Complexity✓ Follow up (in the form of a phone callor email) to check in and ensure theclient understands the transition andto answer any questions or concerns✓ Meeting to discuss commercial
proposition (information should
include current exposure, ratecomparisons (backward and forward 5
years), cash flow comparisons etc.)✓ Allow time to process informationand transition options (suggested
minimum 14 days)✓ Execute if the client is ready totransition

Bilateral Loan +Interest Rate Swap +Inflation Swap
Bilateral Loan +Interest Rate Swap

Approach✓ Send a letter in good time (at least 3
months before commercial
discussion) notifying the client of the
IBOR transition

Product (L2)

Multicurrency Loan
Products

Loans and
Deposits

Agent –Syndicated
RCF
Agent –SyndicatedTerm Loan

Not Agent Syndicated RCF
DerivativesInterest Rate Swap
Bilateral RCF

Loans and
Deposits

Not Agent –Syndicated Term
Loan

► Low

Bilateral Term Loan

Small
Enterprises

SME

Mid Corp.

Large
Corp.

FI andOther

Overall, there may be an increased focus
on the financial impact across client
impacted holdings, and less of a need toprovide background or comparison ofrates. Information may be provided
virtually, with less need for follow up
discussions
Approach✓ Website publication or standard
white paper on overview of change
and high level timeline fortransition strategy✓ Meeting to discuss commercial
options to transition. This is often
complex so may require multiple
meetings to discuss options.
✓ Execute if the client is ready totransition

Case Example: Playbook
The playbook is a practical guide for business to manage the transition of IBOR-referencing client contracts

Bilateral loan transition

CentralProgramme

Start

Review data
pack provided bycentral teamagainst FO
systems (before
providing toclient)Identify
client andpositionsfortransition 3

Confirm clientrisk
categorisation
RAG, which will
drive client
engagement

3

3

Determine and agree internallythe transition strategy utilisingclient and product information
available and confirm products areoperationally ready for delivery.
Options are:A) Choose Macquarie s preferred
productB) ExitC) Refinance
4.1

Is there a potential valuetransfer which exceeds
the relevant Other
threshold specified in
section 4.3.3?

DecisionNo

Create wave 3 client
presentation, tailored
to client needs

Start

Central team tocollate data on client
risk segment,
exposures, contracts,
and Wave 2 feedback

4.4, 4.5,
App. B

6

Stakeholder
notification
required, including
Finance and Credit
Risk?
Decision

No

4.4

2nd
meeting –agreetransition
product
commercial
terms andtrigger date

Recordoutcome of
meetingand update
Wave 3
form

5.3

5

Provide clients with lower
IBOR transition awarenessfurther explanatory slides
on rate formation andbehaviourYes

5

Central team tomaintain content
for wave 3 clienttransition
presentation

Review impactof transition

Manageclientqueries

Consider otherrelevant risk
factors
potentially
impacting thetransition

Yes

3

Keep in simple. Important to provide clear messages to front-line teams.
Better practice to provide detailed reference guide with end-to-end support plus
shorter summarised view on key customer actions required.

4

1st meeting - Engage withclient to explain transition
product commercial terms
and complete Wave 3
client feedback form

5

Seek unanimous approval
at a meeting comprised of
the business IBOR SEO,
business IBOR Lead, Legal,
BAC and Conduct Risk 6.3

Functions inc. Credit Risk,
Finance & Reg Compliance•

Legal / Docs•

Provides on overview of the transition•‘How to use’ guide•
Scope of application (products)•
Timing and overall transition program
Describes the steps to take with the client, differentiated by customer segment 1:
1. Information collection and client segment
2. Evaluation of transition alternatives
3. Engaging with the client: communication approachand matters to be discussed (by segment)
Provides guidance on how to manage the transition•
Progress tracking mechanisms•
Record keeping requirements•
Client issues escalation and resolution•
Booking and settlement•
Legal steps/interaction

MO / Operations•

Example Components

Business IBOR contact /Sales

Customer Playbook TOC

3

Initiate necessary
Notify business of impact
processes based onof transition (e.g. credit
thresholds met 4.4, 4.5,
risk assessment 4.4, 4.5,
App. B

App. B

Finance to makenecessary updates
for rebooking

6.5

Draft amendment /template (annotate keyclauses for inclusion) &confirm trigger date

4.5

Updaterepapering
database 4.5

Clientnegotiation /queries 4.5

Business considerations• Interact with Market Risk to ensure that limits are updated in line with incoming transactions• Engage with Finance throughout transition to ensure internal hedge accounting (if applicable) requirements are met• Manage any basis risk arising from transitioning clients prior to internal funding switch• A refinance proposal requires conflicts clearance, and may also amount to MNPI (as well as exit). if other securities are
price sensitive to the information, the Control Room must be notified.
• If a client wishes to renegotiate other terms, consider other internal approvals e.g. conflicts clearance and wall crossings

Executeagreement
6.5

Reconfirm ratewith client before
re-booking?

No
Re-book (cancel,
new trade)
position & confirm
with client

1) Including a simplified approach for low risk transition, which can be ‘fast-tracked’ while still achieving an appropriate client outcome (neutral value outcome, industry-level replacement rate and spread-adjustment, etc.)
Decision

Yes

Reconfirm ratewith client

6.5

6.5

End

Save
completedform in
SharePoint
5.3

Lessons Learned
A communications strategy supports delivery of consistent messaging and communication across stakeholders
Internal training, a sequenced plan,communication and coordination is paramount as
part of pre-outreach planning.

1
Rigorous tracking and use of related
tools should be used

8

Timing should be coordinated andtriggers for new outreach should be
identified and tracked

7

Playbooks, FAQs and templates should
be developed

ClientCommunications

6

2

Governance and accountability should
be clear3

Client assessments should include
complete understanding of contracts

4

Client segmentation should drivecommunications that tailor
communication approaches

5
Mitigating conduct and reputational risk should guide the development ofcommunications
Highlighted points covered previouslyValue transfer is inevitable, as transition replaces cash flows at contract level
Expected client discussions and outcomes on legacy transactions

Legacy LIBOR transactions

Close-out /terminatetransaction ahead oftransition•

Potential economic event
and accounting entries forderecognition to manage

Renegotiate to
immediate use of RFR(ahead of cessation)••

Modification rules toanalyze for re-negotiations
Consider immediate impact
on hedge accounting (Cashand derivatives aligned)

Agree robust RFR fallback as partof Market Protocol or bilateralnegotiations prior to cessation
date to apply to CFs at cessation.

•

•
•
•

For derivatives: Amendments to 2006
ISDA Definitions and related protocol
supports inclusion of robust fallbacks
Alternative fallbacks can be bilaterally
agreedWhen do modification rules apply?
Possible value transfer between adjusted
RFR and LIBOR at cessation

No agreement – utilize
existing fallbacks (whereusable)•Likely value transfer between
existing fallback rate (COF, fixedhistoric rate etc) and LIBOR

No agreement – contract
frustration / litigation frominability to use fallback•

Possible economic gain/(loss)
through legal process

Question is how to minimize the value transfer across the board and for each customer - Do you understand the value implications offallbacks? Do you understand the value implications of new base rates?

EY | Assurance | Tax | Transactions | Advisory
About EY
EY is a global leader in assurance, tax, transaction and advisory
services. The insights and quality services wedeliver help build trust and confidence in the capital
markets and in economies the world over. We develop outstanding
leaders who team to deliver on our
promises to all of our stakeholders. In so doing, weplay a critical role in building a better working world
for our people, for our clients and for our communities.
EY refers to the global organization, and may refer
to one or more, of the member firms of Ernst & Young
Global Limited, each of which is a separate legal entity.
Ernst & Young Global Limited, a UK company limited
by guarantee, does not provide services to clients.
For more information about our organization,please visit ey.com.
© 2021 EY Corporate Advisors Pte. Ltd.
All Rights Reserved.

UEN
ED MMYYThis material has been prepared for general informational purposes
only and is not intended to be relied upon as accounting, tax orother professional advice. Please refer to your advisors for specificadvice.

ey.comCo-host

Lead Sponsor

Gold Sponsor

SORA Product Presentations (Case Studies):

Gaurav Kapoor
APAC Head – Risk & Valuations
Bloomberg L.P.

37

IBOR transition – A Risk
Management Challenge

Gaurav Kapoor
APAC Head – Sellside Risk & Valuations

Technology challenges posed by new rates

Systems

Across assets &functions

Scope

Decision

Front, middle and back officesystems need to be adjusted tosupport new rates

Valuation, cashflow
calculations & risk sensitivities
across derivatives, bonds, loans& mortgages

Market data, conventions,modelling, ALM mismatch, Risk
Management overhaul, legal
challenges

Tech stack review,
Build vs Buy?
Plug n Play solutions

Your Event Name Goes Here.

Case Study 1: Cash Book - A multitude of new mechanisms(Operational Risk)• Support for fixing in-arrears,
compounding and averaging
conventions necessary forsecurities that reference newrates.

••• Incorporation of payment delays,
lookbacks, lockouts, observation
period shifts and othermechanisms used to ensure
timely payment processing for
RFR-based securities.
Ability to maintain the history of any
outstanding trades whiletransitioning to RFR for futureinterest payments.

Your Event Name Goes Here.

Lookback v Backward Shift

Observation period
Backward shift day
weighting[5] day lag
for rate

Interest period
Lookback day
weightingInterest
commencement
date

Your Event Name Goes Here.

Interest
payment
date

Example batch upload: SOFR loan with lookback

Example Report : 30 fields including accrued SOFR interestYour Event Name Goes Here.

Example Workflow for Bonds / Loans Analytics
Bloomberg Terminal
Users can enter/load
the deals in SWPM
and access portfolio
analytics in MARS

Bloomberg Sever

Loan deals inexternal OMS
are mapped to
csv uploader
and drop to
SFTP

Bloomberg IBOR
Fallback Data
Sets

Bank System

Your Event Name Goes Here.

3

2

1

The Loandeals areuploadedand createdwith deal
IDs inBloomberg
server

4

3

MARS WEB API
Allow non-Bloomberg
user access MARSWeb API to input deal
and generate report

Scheduled batch files
to input in third-party
ALM/Core Banking
systemCase Study 2: Derivatives: Front Office Risk -> Market Risk -> Counterparty Risk

▪
▪
▪
▪

•

Front-Office Risk
- PAI and Re-papering- Valuation Transition- FO Risk reports including‘What-if’ both at a bankand an end customer level•• Market Risk
• - Modelling Complexity• - Potential increase in market risk
capital requirements• - Operational considerations for
Implementation
Counterparty Risk
- Transition analytics to include XVA
analyses- Increase in IM for hedged portfolios
especially curve trades involving
longer tenors – what about MVA?

Your Event Name Goes Here.

Derivatives Markets: MARS API on Changes in Discount Curves

Your Event Name Goes Here.

FO Risk: MARS API for Multi-Curve KRRYour Event Name Goes Here.

Case Study 3: Accounting areas impacted by the reform• Changes to contractual cash flows of financial instruments• Practical expedient to avoid derecognition or adjustments to the carrying amount• Hedge accounting• - Additional temporary exceptions to avoid discontinuation, even if formal designation anddocumentation are amended• - Designate the non-contractually specified risk component, even if not separately identifiable• - Cash flow hedge reserve is deemed to be based on the alternative benchmark rate
• - Cumulative fair value change may be reset to zero when performing IAS 39’s retrospective
effectiveness test
• - Group of items: relief allows the allocation of hedged items to subgroups• Disclosures• - Companies are required to disclose information about the progress of the transition toalternative benchmark rates and how it is managing that transition• Including quantitative information disaggregated by significant interest rate benchmark

Case #1 - Fair Value Hedge transition example• 5 years fixed rate loan paying 5%
coupon on a semi-annual basis• For purposes of hedge
accounting, only 2.57% is being
considered as designated risk
component• This is based on the LIBOR
component of the fixed rate
coupon for the tenor of the loan
(obtained via the par coupon)Fair Value Hedge transition example

Fair Value Hedge transition example

Changes to the swap

Changes to the loan

Previously it was
2.57%

Fair Value Hedge transition example

For fair value hedges, the hedging
instrument and hedged item are remeasured based on the RFR andrecorded in profit or loss as part of
the recorded hedge ineffectivenessfor the period
Trade modification highlighted (~) inthe system

Thank youCo-host

Lead Sponsor

Gold Sponsor

Data Transformation/Implementation:David Rickard
Global Director, Trading Desktop – FX/MM & Derivatives
Refinitiv

56

MANAGING LIBOR TRANSITION
Risk-Free Rates – Data Transformation & Implementation

February 2021, David Rickard
Global Sales Readiness Director – FX, Money Markets & Derivatives

WHAT IS THE IBOR REFORM CHANGE?

From the end of 2021, the FCA will no longer guarantee the production of LIBOR, leading to the real possibility that LIBOR will cease by the end of 2021. The
financial services industry is migrating away from LIBOR benchmarks towards the new risk-free rates (RFRs). Note USD LIBOR cessation was delayed
until June 2023.
As a result, regulators and central banks have announced and released a series of overnight RFRs such as Sterling Over Night Index Average (SONIA) in the UK,
Secured Overnight Financing Rate (SOFR) in the U.S., Euro Short-Term Rate (€STR) in the euro area and of course the Singapore Overnight Rate Average(SORA).

While much of the market is expected to adopt these overnight RFRs administered by central banks, pockets of demand for term rate benchmarks based on RFRs
for loans and other cash products remain.
Central banks will not provide term RFRs, but benchmark administrators, including Refinitiv are developing such products and now makes term SONIA rates
available.
Refinitiv is committed to providing the data and benchmarks clients need to adjust operating models across front, middle and back offices and to create
new financial products in light of the IBOR reforms and LIBOR transition, while also ensuring we meet the high regulatory standards required forbenchmarks.

2021

USD
Key Milestones

2020

58

30 JunJul
Newly issued FRN’s residential ARMs and • Publication of
securitizations should include recommended
ISDA/Bloomb
fallback language
erg indicative
fallback rates• ARRC to publish final
recommended
conventions for SOFRbased FRN, business loans
and securitizations

Managing LIBOR transition

10 Sep
ARRC to establish RFP
process for the publicationof fwd-looking term SOFR
rates and spreadadjustments for transition of
legacy contracts

30 Sep16 Oct
CME and LCH to move to
SOFR PAI & discounting
on new and legacy swaps

1 Dec
31 DecKey USD Libor rates get 18month stay of execution

New syndicated business loans &student loans should include ARRC
recommended fallback language

No new FRN’s
using LIBOR
and maturing
after 2021.

End H1 ‘21
ARRC torecommend
forward-looking
SOFR Term rate

Dec ‘21Banks no longer
obligated tomake LIBOR
submissions

Market participants should adhere to the
ISDA’s Fallback Protocol for Interbank
Offered Rates within 3- to 4-months ofpublication

THE TRANSITION TO RISK FREE RATES IS NOT RISK FREE

Data Transition

Implementation➢ Access to multiple reliable prices sources➢ Adapting existing legacy platforms orbuilding/replacing with new RFR designed▪

It is critical that organisation understand and map their current
IBOR linked product exposures and calculated risk.

▪

Throughout 2021 (and beyond) there could be the need to runparallel valuations against existing IBOR based instruments &RFR base instruments

Connectivity – recognising how to access and integrate multiple
new data types (live/End of Day)▪

Understand how your business will connect and consume new
RFR/SORA based data – and how the new calculation
methodologies need to be applied (Backward looking/Forward
looking)

Take the opportunity to review how you consume/move dataaround your organisation and ensure that it is done in an ‘audit
proof’ compliant approach▪

Ensure that your company has access to data that can cover
your product/instrument exposures that you have today, but also
look to where you might need broader coverage in the future.

▪

Accessing new zero coupon curves & ISDA Fallback Rates▪

▪

Datascope has new fields for Fallback Language and transition
events – and trial access to specialist broker data from our IDB
partners

Look beyond your local currency/market and have a plan inplace to map how you could need addition currencies/RFRssuch as SONIA, SOFR, ESTR, TONA, HONIA etc etc.

▪

Refinitiv now offer Term SONIA rates that can be applied toLoans, Term Finance and other interest rate linked instruments▪

New analytics – make sure you have access to calculators andvaluation tools that have all new RFR curves built into them andtest them.

▪

▪

▪

59

Ensure that any instruments that are currently referencing
existing IBOR based instruments are carefully checked from alegal stand point and re-papered where needed – work with yourlegal and compliance teams
Managing LIBOR transition

IBOR TRANSITION EIKON APP
Access all new RFR data, news and analytics on the IBOR page in Refinitiv Eikon®
The IBOR Transition app keeps you up to date with
global changes to interest rate benchmarks. The
app provides news and values on a variety of rates:•

Risk-free reference rates (RFRs)•

Key links•

Incumbent interest rates•

Brokers RFR derivative content (Fixing, OIS,
Basis Swaps, FRAs…)•

Derived Analytics data: Term Rates,
Compounded Index, Zero Curves

60Managing LIBOR transition

Click SORA to access SORA related data news chart

OTC DERIVATIVES AVAILABLE ON NEW RFRS – SORA OIS & OTHER RFR
OIS Data available from all major Interdealer Brokers and Tradeweb platform

USD OIS SOFR 1Y Quotes

61

Managing LIBOR transition

SGD OIS SORA curve (Tradition)

FIND NEW RFR DENOMINATED INSTRUMENTS – SORA EXAMPLE
Type “GOVSRCH” to open the Eikon bond search tool

Related Refinitiv Eikon Apps:• Use bond calculators’ value to determine coupon calculations for RFR FRNs,
select a bond and type “BNDC”
Type “SORA” in Quick Filters and click Underlying Index

Filter by Bond Type to display bonds onlyor certificates of deposits

62

Managing LIBOR transition

FIND NEW RFR DERIVATIVES – SOFR SEARCH RESULTS
Save your search filters to re-run the search on one click

Click the Pop Up Icon
to open a Quote
Here you will find
FRAs, Libor/new
RFRs Basis Swaps,
OIS

63

Managing LIBOR transition

Expand Contributors to view Data from Inter Dealer Brokers

FIND NEW RFR OIS ZERO COUPON BASED CURVES
Type “CURVESRCH” to open the Eikon Curves advanced search tool and find New curves tosupport RFR product and valuation Select Name Contains SOFR

Alternatively open a Quote and type <OISZERO> to find all
REFINITIV OIS Zero Curves including the new Curves

USD Zero Coupon SOFR CURVE
vs 3M Libor

64

Managing LIBOR transition

NEW RFR OIS PRICING – SWAP PRICER APP
Priced using New RFR curves, Fixing in Arrears is available, SOFR, SONIA, €STR, SORA… OIS discounting is available for all
Derivatives.
€STR, SARON, SOFR, SONIA, SORA, TONAR, AONIA are available in Swap Pricer & Analytics APIs

65

Managing LIBOR transition

ISDA FALLBACKS – REFINITIV IS AN OFFICIAL AUTHORIZED REDISTRIBUTOR
Type “IBOR” to open the IBOR App, and select the Fallbacks tab

What is a Benchmark fallback
Benchmark fallbacks are replacement
rates that would apply to derivatives
trades referencing a particularbenchmark (LIBOR). Source: ISDA

When ? Q3 2021 according to BOE
Complete active conversion of cash
products. Where active conversion is
not possible for loans, ensure robust
fallbacks are adopted
Source: Bank of England

66

Managing LIBOR transition

REFINITIV TERM SONIA RATES – NOW IN PRODUCTION
Type “SONIA” to open the IBOR App, and Term Reference Rates

Refinitiv® Term SONIA Rates
Refinitiv Term SONIA Rates leverage
our experience in administering
benchmarks to create a GBP forward
looking term risk-free rate, publishedprior to noon on a daily basis. It isavailable in 1-month, 3-month, 6month and 12-month tenors

67

Managing LIBOR transition

REFINITIV ANALYTICS INITIATIVES UNDERWAY

Derived analytics: Refinitiv is adding the following Analytics features•

Scenario analysis tools to help assess the impact of IRS, FRNs LIBOR based on existing portfolios•

New calculator App and Excel spreadsheet to help calculate Realized Compounded rates for SONIA, SOFR, €STR and TONAR(Tokyo Overnight Average Rate) following Bank of England recommendation•

New real-time analytics-derived calculations such as Forward Swaps, Swaptions skews on the new RFRs

68

Managing LIBOR transition

KEY EIKON APP SHORTCUTS

69

IBOR

Ibor App

SRCH

Search tools home page

BNDFOSRCH

Future Search tool

GOVSRCH

Bond Search tool

CURVESRCH

Curve Search tool

IRDOTCSRCH

Rates Derivatives Search toolFINIM

New Issue Monitor App

BNDC

Bond Calculator

SWPR

Swap Pricer Calculator

Managing LIBOR transition

LINKS AND RESOURCES
Refinitiv Libor Transition website / scan here:

White Paper on IBOR reform by Refinitiv and Waters Technology

SOFR as an alternative to LIBOR, blog post by Alexandre HARDOUIN
SONIA Term Rate Methodology, factsheet, Press release, external Blog
ISDA Fallback Data Notification

70

Managing LIBOR transition

THANK YOU

Refinitiv is one of the world’s largest providers of financial markets data and infrastructure, serving over 40,000 institutions in approximately 190 countries. It provides
leading data and insights, trading platforms and open data and technology platforms that connect a thriving global financial markets community – driving performancein trading, investment, wealth management, regulatory compliance, market data management, enterprise risk and fighting financial crime.

Visit refinitiv.com@Refinitiv

Refinitiv

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Lead Sponsor

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Accounting and Tax Issues – Top 10 to Tax Issues to Keep Front of Mind:

KwanEng Chew
PartnerQuantitative Analytics andTreasury Services
Ernst & Young Solutions LLP

Rajesh Bheemanee
Partner
Financial Services Transfer Pricing
Ernst & Young Solutions LLP
73

SOR to SORA transition
Hedge Accounting and Tax Consideration
2 February 2021

Presenters

Kwan Eng Chew

Rajesh Bheemanee

PartnerQuantitative Analytics and Treasury
Services
Financial Services

Partner
Financial Services Transfer Pricing
Ernst & Young Solutions LLP

Tel: +65 6525 2350
Email: kwan-eng.chew@sg.ey.com

Tel: +65 6309 8274
Email: rajesh.bheemanee@sg.ey.com

SectionHedge
divider over
two lines or three
Accounting
lines

Page 76

2 February 2021

SOR to SORA transition

Hedge Accounting
A quick recap of reliefs and reminder of potential sources of ineffectiveness
Phase 2Phase 1Pre-replacement Issues

Replacement Issues

Effective Date

Periods beginning on or after 1 January 2020 (early
application permitted)

Periods beginning on or after 1 January 2021 (early
application permitted)

Hedge
Accounting
Reliefs

1. The assessment of whether a forecast transaction is highly
probable

1. Relief from discontinuing hedge relationships because ofchanges to hedge documentation required by the reform*

2. Assessing when to reclassify the amount in the cash flow
hedge reserve to profit and loss
3. The assessment of the economic relationship between thehedged item and the hedging instrument

Sources of
ineffectiveness► To the extent that a hedging instrument is altered so that its cash flows are based on an RFR, but the hedged item is stillbased on IBOR (or vice versa), there is no relief from measuring and recording any ineffectiveness that arises due todifferences in their changes in fair value* Important notes
Changes must be necessary as a direct consequence of interest rate reform
The new basis for determining the contractual cash flows is “economically equivalent” to the previous basis

Page 77

2 February 2021

2. Temporary relief from having to meet the separately
identifiable requirement

SOR to SORA transition

Hedge Accounting
Transitioning a Cashflow Hedge Relationship – Scenario Analysis on Effectiveness
Scenario 1: Reference Rate andobservation mismatch

Scenario 2: Transition Timing
Mismatch

Scenario 3: Critical terms match

Fallback rate for loan

Compounded SORA + adjustment

Compounded SORA + 10bps

Fallback SOR/Compounded SORA +adjustment

Fallback rate forderivative

Fallback SOR

Compounded SORA + 15bps

Matches the loan fall back rate

Rate transition
timingLoan repapered earlier/later thanderivative

Loan repapered earlier/later thanderivative

Both repapered at the same time

Interest observation
and accrual

Loan – compounding in advance
Derivative –compounding in arrears

Both – compounding in arrears1

Both – backward compounding inarrears1

Potential sources2 ofineffectivenessMismatch in underlying reference rateand interest observation-

Potential interest differential interm adjustment due to timing
mismatch-

Unlikely

Effectiveness
Lower
Note:
1 No intended preference between in arrears and in advance compounding
2 Assuming all things equal and no other modifications that are non-IBOR related has been made to both loans and derivatives

Page 78

2 February 2021

SOR to SORA transition

HigherHedge Accounting
How can we react to corporate clients with legacy contracts designated for hedge accounting?
SOR vs Fallback SOR vs Compounded SORA + Spread

Achieving higheffectiveness

0.35%
0.30%
0.25%
0.20%
0.15%

Reference Rate

0.10%
0.05%
0.00%
6/1/206/16/20

7/1/207/16/20

7/31/20

8/15/20

3M Fallback Rate (SOR)

3M SOR

3M Compounded SORA + 10bps

3M Compounded SORA + 20bps

8/30/20

9/14/20

9/29/20

3M Compounded SORA

Timing of transition

Source: MAS and Refinitiv
For purpose of illustration, 3M compounded SORA has been shifted for the ease of comparing a 3M interest reset

Interest observation andaccrual

How we see it
Entities are recommended to ensure that there are as few mismatches as possible in the timing of the amendment ofhedging instruments and hedged items, to minimize the level of recorded hedge ineffectiveness.
This may be especially challenging if an entity’s swap traders do not know if a particular derivative is designated in a
hedging relationship, as is more likely to be the case where a dynamic strategy is used or if derivatives are designated in‘proxy’ hedges. Procedures would need to be established to help ensure that derivatives are not modified without firstconsidering the accounting consequences.

Page 79

2 February 2021

SOR to SORA transition

No other non-IBOR related
terms repapering

SectionTax
dividerover two lines or three
Considerations
lines

Page 80

2 February 2021

SOR to SORA transition

Tax Considerations
Overview
Corporate Tax (Transactional PnL)
► Termination, amendments, or revaluation of financial instruments, or any other tax assets and liabilities

may entail immediate tax recognition► Tax treatment to follow the prevailing revenue/capital tax treatment of the underlying transaction

Tax should proactively
assess the “tax only”
consequences – inaddition to the potential
value transfer - and notjust assume
downstream impacts
from accounting andlegal changes arising on
IBOR transition

Transfer Pricing► The IBOR transition will impact various financial instruments / lending facilities & arrangements, from atransfer pricing perspective► Need to reassess transfer pricing policies to ensure applicability of alternate reference rates (ARRs)► Amending existing intercompany loan agreements that reference IBOR to include fallback language► Tax authority would view the transition as new pricing event or considered a price adjustment under the

existing terms of the loan
► Impact on APAs, Debt Capacity Agreements, rulings or other agreements with tax authorities

Page 81

2 February 2021

SOR to SORA transition

Tax Considerations
Overview
Stamp Duty
► Dutiable instruments which have to be re-executed (due to legal requirement) may incur stamp dutyagain

Tax should proactively
assess the “tax only”
consequences – inaddition to the potential
value transfer - and notjust assume
downstream impacts
from accounting andlegal changes arising on
IBOR transition

Withholding Tax► Banks and approved financial institutions that have blanket withholding tax exemptions will continue

to be covered during the transition from SOR to SORA
► WHT exemption granted to non-bank corporate taxpayers would continue where terms with specified

reference interest rate are replaced by SORA

Others► Tax deduction rules for borrowing costs for non-bank corporate taxpayers► For example, the one-time payment might fall within the definition of “conversion fees oramendments fees” or “cancellation fees,” depending on whether the loan is amended or it is canceledand replaced with another loan

Page 82

2 February 2021

SOR to SORA transition

EY | Building a better working world
EY exists to build a better working world, helping tocreate long-term value for clients, people and society
and build trust in the capital markets.

EY refers to the global organization, and may refer to one or more, of themember firms of Ernst & Young Global Limited, each of which is a separate legal
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Enabled by data and technology, diverse EY teams inover 150 countries provide trust through assurance andhelp clients grow, transform and operate.

© 2021 EY Corporate Advisors Pte. Ltd.
All Rights Reserved.

Working across assurance, consulting, law, strategy, tax
and transactions, EY teams ask better questions to find
new answers for the complex issues facing our world
today.

ED MMYY or ED None

APAC no. 12000XXX

UEN 201911025K
This material has been prepared for general informational purposes only and is
not intended to be relied upon as accounting, tax, legal
or other professional advice. Please refer to your advisors
for specific advice.

ey.comCo-host

Lead Sponsor

Gold Sponsor

Banking Panel on Legal/Conduct Issues:

Glenn Foo
Allen & Gledhill

Kok Chee
Allen & Gledhill

Poh Mai Fuang
OCBC

Chan Mun Bin
Koh Hwee Keow
Standard Chartered UOBFrancis Mok
Allen & Gledhill

Joyce Lai
DBS

Lam Chee Kin
DBS (moderator)

Lyn LeeOCBC

85

Co-host

Lead Sponsor

Gold Sponsor

Q&A

87

Co-host

Lead Sponsor

Gold Sponsor

Closing Remarks:

Vernice Moh
Managing Director, ASEAN
Refinitiv

89Thank you for attending!
We hope to see you at our next event:ASIFMA Virtual Event:Best Foot Forward: Managing Regulation-driven Market Fragmentation in Asia
Thursday, 25 February 2021
4:00pm – 5:30pm (HKT/SGT)

www.asifma.org/events
90

Featured Speakers:

Tokio Morita
JFSA and IOSCO Asia PacificRegional CommitteePeter Reynolds
Oliver Wyman

Lee Boon Ngiap
Monetary Authority Singapore
and Member of IOSCO Board

Jennifer Keser
Tradeweb

Carolyn Rogers
The Basel Committeeon Banking Supervision

Jenny Cosco
Goldman Sachs

Mark Austen
ASIFMA

Matthew Chan
ASIFMA (moderator)

Stewart James
HSBC