Market participants identified a lack of standardisation, harmonisation and consensus between different jurisdictions and asset classes as a key area of concern.
ASIFMA and international law firm Ashurst have jointly released a report highlighting key areas of action for the industry to focus on as it navigates the LIBOR transition.
The report is based on a regional survey of ASIFMA’s members, conducted August 2020, to identify key issues that require attention before end-2021.
Among the key themes identified in the survey, the report calls for measures to address a lack of standardisation, harmonisation and consensus between different jurisdictions and asset classes, which is a key area of concern for participants.
Harmonisation is needed on recommended ARRs, spread adjustment methodology and timing for transition, including in relation to Islamic and non-linear products, the report says.
“Participants would be grateful for more coordination between LIBOR and non-LIBOR markets, in particular for rates including MIFOR, PHIREF and Yen LIBOR.”
In addition, regulators are asked to establish concrete transition milestones – in jurisdictions that have yet to do so.
Survey participants are also still seeking clarity on how to handle tough legacy contracts, how local IBORs would operate with synthetic LIBORs, and whether term rates for local RFRs will be available.
“There is interest among participants to understand whether tough legacy assets are a major issue in the JPY LIBOR, SOR, PHIREF, THBFIX, and MIFOR markets specifically, and the extent that they are considered problematic,” the report says.
A key issue highlighted in the survey was the need to improve liquidity in Asian RFRs, including through pre-cessation announcements, regulatory intervention, industry guidance, government note issuance, and by expediting CCP and non-cleared derivatives discounting.
Participants are also looking for regulators to develop minimum or recommended standards for customer education and outreach, and to establish legislative protections, to address litigation, regulatory and conduct risk in connection with IBOR transition.
“As we head into the tail-end of 2020, we are also entering the final sprint for LIBOR transition,” said ASIFMA head of fixed income Philippe Dirckx. “We hope that our identified action focus areas can serve to facilitate a more targeted approach by industry bodies in tackling the most pressing issues of LIBOR transition in an efficient and effective manner.”