IBOR Reform: USD LIBOR Deadline, Less Than a Month to Go…

6 June 2023 Kirston Winters

As the deadline for USD LIBOR cessation fast approaches, we looked at the data to get the latest picture of North American IBOR reform as of the end of May 2023.

OSTTRA MarkitWire first facilitated the processing of Secured Overnight Financing Rate (“SOFR”) swaps in July 2018. The migration of legacy cleared portfolios from USD LIBOR to SOFR were processed by OSTTRA MarkitWire on the weekend of 22 April 2023 and 20 May 2023 meaning all cleared USD-LIBOR swaps are now USD-SOFR. These included trades cleared at Eurex, CME Group, LCH and HKEX. OSTTRA MarkitWire processed over 300k trades for over 160 firms, through its CCP Synchronization service. OSTTRA MarkitWire will also process trades as part of the conversions for dependant currency indices (SGD and THB) in June 2023. The conversion for USD was considerably larger than previous conversions in GBP, EUR, CHF and JPY.

In addition, OSTTRA triReduce has continued to compress legacy USD LIBOR swaps as part of its compression service. In 2023 OSTTRA triReduce has compressed $14 trillion of notional, for 72 entities which also includes dependant currency indices (SGD and THB).

We have assessed the data processed by the OSTTRA MarkitWire platform to evaluate the progress of interbank offered rate (IBOR) transition for the $414 trillion single currency interest rate swaps (IRS) market, analysing market share in USD and CAD between legacy IBORs, overnight index swaps (OIS) and the new risk-free rates (RFRs).

USD Swaps

As the deadline approaches SOFR has hit a new record of just over 90% of new USD swaps executed in March 2023. With LIBOR and Fed Funds both at just under 5%.

In terms of notional traded SOFR passed 50% for the first time to reach 53% in May 2023, with Fed Funds at 43% and LIBOR at just 4% share by notional.

NB: Fed Funds tend to be short dated and larger notionals traded hence the difference between the share in aggregate notional traded versus the number of trades executed.

CAD Swaps

CORRA has surged to almost 50% of volume by trade count in May 2023, up from just 11% in December 2022.

In notional traded terms CDOR has been the majority since November 2022 but has marked another new record of almost three quarters of notional traded in May 2023.

Conclusion

As the last days of USD LIBOR for the OTC swaps markets are upon us great progress has been made but there remains a little more to do in the remaining 24 days.