ANZ’s current view is that derivatives are most likely to lead the way in transition from a product perspective. It’s unlikely much will happen before the end of Q2 2020 as the market waits the finalisation of the ISDA LIBOR fallbacks and the publication of the Protocol.
For cash products, the expectation is that as alternative rates begin to gain market acceptance, there will be an emergence of a market consensus on the mechanics of those rates, with new conventions emerging. Template documentation will be published by industry working groups (e.g. LMA or (in the US) ARRC) to reflect that market consensus that will be ready for use in deals. In the meantime, loan industry bodies have, and will continue to, publish consultation drafts for market participants to consider, and will publish the outcomes of those consultations.
When central clearing houses move to SOFR discounting in October 2020, this may provide more liquidity in the market place. Subject to the impacts of the COVID-19 pandemic, the UK regulator is pushing for the end of GBP LIBOR product selling/origination by Q3 2020. This timing may change.
2020 will be a critical year for the transition, during which market conventions are expected to be established, infrastructure/systems upgraded and documentation to be published that will assist with the contractual aspects of the move away from IBOR rates.
Following that, and particularly from Q1 2021, ANZ anticipates that the momentum in the transition will pick up significantly.