PLN benchmark transition

At the beginning of the week I participated to the "Benchmark Reform Congress" organized by CEETA in Warsaw (Poland).

I discovered with interest the current situation in the Polish market with the strong push by the government to reform the interest rate benchmark and discontinue the use of WIBOR as the main benchmark by the beginning of 2023.

The transition could be more difficult than in the LIBOR case as 6 months before the potential discontinuation date, the replacement benchmark has not been decided yet. The current overnight rate is POLONIA, published by the central bank; it is used for collateral remuneration but there is almost no OIS transactions. The local CCP KDPW is in theory clearing those instruments but there is currently no outstanding transactions (even if there were some a couple of years ago).

The local players are discussing about potential new benchmarks. The current status is discussed in a long consulting paper published by GPW Benchmark: Transactions-based Interest Rate Benchmarks.

The discussion around those transition and the selection of an overnight benchmark reminded me of a blog dating from 2014 (!) titled "Change of benchmark overnight index is a difficult task". The situation 8 years ago was a desire by the US Federal Reserve to use a repo rate based overnight benchmark to replace the Fed Funds overnight benchmark. ISDA then said: "change easy to absorb". We are now almost 8 years later and the "easy" changes are not achieved yet. On the theoretical side,  many research papers have been and still are published to understand the direct and indirect impacts[1]. On the practical side, the transition is not done yet with many CSA still on Fed Funds, Fed Funds volumes at LCH last week higher than SOFR and financial institutions have spend hundred of millions of dollars in Benchmark change related projects.

From my point of view, even if we have done a lot of progress in understanding the intricacies of change of benchmarks, I would not change my opinion: "Change of benchmark overnight index is a difficult task". And a can only wish "all the best" to the PLN market in its transition.

[1] I'm the author of some of those papers. Among them:

Comments

Post a Comment

Popular posts from this blog

Multi-curve framework book: new edition in progress

Image
Subject: Interest Rate Modelling in the Multi-curve Framework: Foundations, Evolution, and Implementation It has been more than 10 years since I wrote the first edition of the multi-curve framework book. What happened in those 10 years? Why did it take me so long to start a new version? It took me roughly 10 years to write the first edition. The reason it took so long at that time, was that I did not know that I was writing it! I thought I was writing a couple of pages on an obscured and theoretical idea that there was not a `` one curve to rule them all '' but multiple curves. It turned out that it became the actual practice for very clear and important reasons. That was the excuse for the first edition, what is the excuse for the second edition? Since the first edition, many things happen, in particular: March 2015: BCBS - IOSCO: margin requirements for non-centrally cleared derivatives and mandatory variation margin July 2017: The future of LIBOR -- actually it
Read more

Rigged: part 1 - Will there be a part 2?

Image
I have been reading book “Rigged: The Incredible True Story of the Whistleblowers Jailed after Exposing the Rotten Heart of the Financial” (Andy Verity, Flint, June 2023) for some time. It was published several month ago, but I just finished it. To my defence, I have to say that I don’t feel comfortable reading fiction where the “bad guys” are systematically winning by cheating. The book is the story of the miscarriage of justice done in the LIBOR manipulation story. The book content did not surprise me. For anybody having worked on a (swap) trading desk, it is clear that what was described by the accusation was impossible. It is not possible for some middle level trader to create a multi-year, multi-desk, multi-bank international conspiracy over open lines, broker lines, on open offices etc. without all around them, including compliance and senior management to be fully aware of what is going on. Moreover the regulators cannot be ignorant of the situation, except pleading complete in
Read more

A personal statement on the IOSCO Statement on Alternatives to USD Libor

IOSCO has issued a document called “Principles for Financial Benchmarks” in 2013. As such it acted as an (unofficial/unelected) lawmaker. On 3 July 2023, the same IOSCO issued a “ Statement on Alternatives to USD Libor ”. The Statement looks like a tribunal judgement from a trial with no public hearing, no witness, and no defense right from a tribunal with no mandate to judge. And publish on the day before Independence Day! Some personal comments on the document. Transparency The statement indicated “Administrators should consider whether to improve the transparency of their rates". The IOSCO document lack minimum transparency. It does not indicate in any way the “varying degrees of vulnerability of concern“ of the analysed benchmarks. The name of the benchmark are not even indicated. This creates a culpability by association to all non-SOFR benchmarks. The statement refers to a Review of Alternatives to USD Libor ; to my knowledge, the review itself is not available. The st
Read more