INSTRUMENT

PRICING
ANALYTICS
Instrument Pricing Analytics (IPA)

What is Instrument Pricing Analytics?

Refinitiv Data API ANALYTICS

Platform • Delivered off the • Instrument-level
• A set of Refinitiv Data
Platform • Pricing data
capabilities to (Curves, Surfaces)
distribute Refinitiv • Public Cloud
content
Product Concept
Today’s Client Workflow

Snapshot

History
history Upload Analytic Client
Data Derived
data Application
wrangling computation data

R efinitiv Site Custom er Site

With Instrument Pricing Analytics (IPA)

Analytics are derived on clients’ premises
price-it
Adfin

Snapshot

History Analytic Derived Client

Data computation data Application
wrangling

R efinitiv Site Custom er Site

Analytics are derived at Refinitiv

Key Benefits
Increased value, lower TCO

Desktop Users Adfin

API Developers Price-it

Partners Consistent analytics Extensive Partners

across workflows and asset class
customers coverage

Analytics Cloud based

pre-configured parameterized
with Refinitiv trusted API request / response
data

streaming
LIBOR TRANSITION

Impact on Bond Market : Pricing, Curves

AGENDA

Why the change?

Navigating the Libor transition
A closer look: impact on Floating Rate Notes
A closer look: impact on Valuation

6 Managing LIBOR transition

NAVIGATING THE LIBOR TRANSITION

7
WHAT IS HAPPENING TO LIBOR?
Changes in Underlying
Market & LIBOR fragility
• LIBOR first published in 1986 and
has undergone only one material
change in last 30 years.
• Much less interbank lending,
funding strategies have changed.
• IBORs not based on actual market
transactions , exposing rates
to manipulations.
Transition comes with challenges for all Market Participants
8 Managing LIBOR transition
Scandals, Fines &
Regulation
• Exploiting of flaws in submissions-
based LIBOR framework exposed
market to $9Bn fines.
• Financial Stability Board
recommendations in 2014.
• 2017 - FCA announced banks will not
be compelled to contribute to LIBOR
post 2021.
• EU launches Benchmark Regulation
(EU BMR) in 2018
LIBOR’s end and long-term
replacements
• Working groups set up in major
markets to select alternative Risk
Free Rates (RFRs) to replace
IBORs.
• Firms cannot rely on LIBOR
being published after the end of
2021.
• Derivative markets pushed to use
RFRs instead of LIBOR.
Cash/Loan markets must amend
contracts to prepare for an IBOR
not to be available
TRANSITIONING TO RISK FREE RATES - A GLOBAL EFFORT

Jurisdiction Existing RFR RFR RFR Administrator Description Main Characteristics

IBOR Announced

USA
USD
SOFR April 2018
Federal Reserve Bank of New
Overnight US Treasury repo (new) RFRs IBORs
LIBOR York

Interbank Offered
GBP Overnight unsecured deposit
UK
LIBOR
SONIA April 2018 Bank of England
(enhanced)
Overnight Deposits Rates Overnight to
1Year
Eurozone EURIBOR €STR October 2019 ECB Overnight unsecured deposit (new)

Backward looking Forward Looking

Switzerland CHF LIBOR SARON October 2017 SIX Swiss Exchange Overnight repo transactions (existing)

December
Japan TIBOR TONA Bank of Japan Overnight unsecured call rate (existing) Risk Free or Nearly Incorporates Credit
2016
Risk Free Risk
Cash Rate
Australia BBSW 2017 Reserve Bank of Australia Overnight unsecured fund (existing)
(AONIA)

Submission, or Partly
Enhanced November Transaction Based
Canada CDOR
CORRA 2018
Bank of Canada Overnight repo transactions (enhanced) Transaction Based

Monetary Authority of
Singapore SIBOR SORA August 2019 Overnight unsecured transactions
Singapore
New issues won’t reference IBOR
index after end 2021 and before
Hong Kong HIBOR HONIA April 2019 Treasury Markets Association Overnight unsecured transactions
IBOR rate publication will be
discontinued from 2021 for some
countries!
9 Managing LIBOR transition
GENERAL MARKET ADVICE GIVEN TO MOVE OFF IBORS BY INDUSTRY GROUPS

Present IBOR End Future

Fallback Provisions to Contracts to be added Fallback Replaces IBOR in Contract as Reference

Benchmark
Existing Cash Products
Referencing IBORs

Reference Backward looking RFRs Reference RFRs or Term Rate RFR if available
or term rate RFR once available
New Cash Products

10 Managing LIBOR transition

IMPACT ON BOND MARKET?

11
FLOATING RATE NOTE MARKET : NEW ISSUES WITH RFRS

Outstanding Notional
RFR Index Number of active issues Local Currency
AONIA 3 1 730 M
CORRA 3 603 M
€STR 7 4 850 M
SONIA 168 101 390 M
SORA 8 6 920 M
SOFR 839 656 065 M
Grand Total 1028 -
Source: EJV GovCorp Database / March 19th, 2021

12 Managing LIBOR transition

IMPACT ON FLOATING RATE NOTES: NEW PAY-OFFS

Formulas Annualized Realised Rate Payment

Date
Compounding 𝑑𝑑𝑏𝑏𝑏𝑏
𝑅𝑅𝑅𝑅𝑅𝑅𝑖𝑖−𝑘𝑘 ∗ 𝑛𝑛𝑖𝑖 𝑌𝑌𝑌𝑌 T
with Lag of k days � 1+ −1 dbd : Number of business days of the period
𝑌𝑌𝑌𝑌 𝑑𝑑𝑐𝑐
𝑖𝑖=1
dc : Number of calendar days of the period
Average 1
𝑑𝑑𝑏𝑏𝑏𝑏
T ni: Number of calendars days for ith fixings
With Lag k days � 𝑅𝑅𝑅𝑅𝑅𝑅𝑖𝑖−𝑘𝑘 ∗ 𝑛𝑛𝑖𝑖
𝑑𝑑𝑐𝑐
𝑖𝑖=1 YB: Year Basis
Compounding 𝑑𝑑𝑏𝑏𝑏𝑏
𝑅𝑅𝑅𝑅𝑅𝑅𝑖𝑖 ∗ 𝑛𝑛𝑖𝑖 𝑌𝑌𝑌𝑌 T+k
& Payment Delay k � 1+
𝑌𝑌𝑌𝑌
−1
𝑑𝑑𝑐𝑐
days 𝑖𝑖=1

𝑑𝑑𝑏𝑏𝑏𝑏
𝑅𝑅𝑅𝑅𝑅𝑅min(𝑖𝑖,𝑑𝑑𝑏𝑏𝑏𝑏 −𝑘𝑘) ∗ 𝑛𝑛𝑖𝑖 𝑌𝑌𝑌𝑌 T
Compounding � 1+
𝑌𝑌𝑌𝑌
−1
𝑑𝑑𝑐𝑐
& Lockout k days 𝑖𝑖=1

Shift Period k days 𝑑𝑑𝑏𝑏𝑏𝑏

𝑅𝑅𝑅𝑅𝑅𝑅𝑖𝑖−𝑘𝑘 ∗ 𝑛𝑛𝑖𝑖−𝑘𝑘 𝑌𝑌𝑌𝑌 T
� 1+ −1
𝑌𝑌𝑌𝑌 𝑑𝑑𝑐𝑐
𝑖𝑖=1

Spread/quoted margin to be added to these formulas to get final rate!

13 Managing LIBOR transition
IMPACT ON VALUATION FOR FRNS

14
PRICING IMPACT : WHICH YIELD CURVES?

Fixed Rate Bonds

• No major Impacts. Continue discounting using Bonds Curves from either issuer curve, sector curve

Floating Rates Notes and other Cash Instrument referencing a new RFR Index
• Use a forward curve on RFRs (using RFR ON deposits, Futures on RFR and Swaps on RFRs)
• Use an Issuer Curve or Sector Curve for discounting

Floating Rates Notes and other Cash Instrument still referencing an iBOR Index
• Use a forward curve on iBOR (which is built from a RFR Curve and basis swaps between IBOR and RFRs)
• Use an Issuer Curve or Sector Curve for discounting

15 Managing LIBOR transition

PRICING IMPACT ON FLOATING RATE NOTES

P
Coupon determined
Coupon estimated
t
𝑇𝑇𝑚𝑚−1 𝑇𝑇𝑚𝑚 𝑇𝑇𝑛𝑛

1 𝐵𝐵𝑅𝑅𝑅𝑅𝑅𝑅 𝑡𝑡,𝑇𝑇𝑖𝑖−1
𝐹𝐹𝑖𝑖 = 𝐹𝐹 𝑡𝑡, 𝑇𝑇𝑖𝑖−1 , 𝑇𝑇𝑖𝑖 = − 1 , same as for a Forward Libor
𝜏𝜏(𝑇𝑇𝑖𝑖−1 ,𝑇𝑇𝑖𝑖 ) 𝐵𝐵𝑅𝑅𝑅𝑅𝑅𝑅 𝑡𝑡,𝑇𝑇𝑖𝑖

1 + 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅(𝑇𝑇𝑚𝑚−1 , 𝑡𝑡) � 𝜏𝜏 𝑇𝑇𝑀𝑀−1 , 𝑡𝑡 1

Dirty Price 𝑡𝑡 = −1 � + 𝑠𝑠 � 𝜏𝜏 𝑇𝑇𝑀𝑀−1 , 𝑡𝑡 � P � 𝐵𝐵𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅 (𝑡𝑡, 𝑇𝑇𝑚𝑚 )
𝐵𝐵𝑅𝑅𝑅𝑅𝑅𝑅 (𝑡𝑡, 𝑇𝑇𝑚𝑚 ) 𝜏𝜏 𝑇𝑇𝑀𝑀−1 , 𝑡𝑡
+ ∑𝑁𝑁 𝑖𝑖=𝑚𝑚(𝐹𝐹𝑖𝑖 + 𝑠𝑠) � 𝜏𝜏 𝑇𝑇𝑖𝑖 , 𝑇𝑇𝑖𝑖+1 � 𝐵𝐵𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅 (𝑡𝑡, 𝑇𝑇𝑖𝑖+1 ) � P
+𝐵𝐵𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅 (𝑡𝑡, 𝑇𝑇𝑛𝑛 ) � 𝑃𝑃
𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 𝑡𝑡 = 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅(𝑇𝑇𝑚𝑚−1 , 𝑡𝑡) + 𝑠𝑠) � 𝜏𝜏 𝑇𝑇𝑀𝑀−1 , 𝑡𝑡 � P

Clean Price(t) =Dirty Price 𝑡𝑡 − 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 𝑡𝑡

𝐵𝐵𝑅𝑅𝑅𝑅𝑅𝑅 𝑡𝑡, 𝑡𝑡 ′ = Discount factor between t and t’ based on the RFR Curve
𝐵𝐵𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅 𝑡𝑡, 𝑡𝑡 ′ = Discount factor between t and t’ based on the risky bond curve
𝜏𝜏 𝑡𝑡, 𝑡𝑡 ′ = Day count fraction between t and t’
16 Managing LIBOR transition P = Principal s = annualized spread