About 50% of derivatives referencing LIBOR will mature beyond end-2021, Japanese survey shows

Maria Nikolova

In the aggregate of USD, EUR, GBP, CHF, JPY, the amounts outstanding of contracts referencing LIBOR are about 164 trillion yen of assets, 35 trillion yen of liabilities, and 6,300 trillion yen of notional amounts of derivatives.

The Financial Services Agency of Japan (JFSA), together with the Bank of Japan, today published the findings of a joint survey of financial institutions, including banks, securities companies and insurance companies, about their quantitative LIBOR exposures and their qualitative LIBOR transition progress.

The survey covers 278 entities: 9 major banks, 104 regional banks, 9 trust banks, Norinchukin Bank, Shinkin Central Bank, 12 other Japanese banks, 15 foreign bank branches, 19 major Japanese securities companies, 13 foreign securities companies, 42 life insurance companies, and 53 non-life insurance companies.

The survey shows that, in the aggregate of the five currencies (JPY, USD, EUR, GBP, CHF), the amounts outstanding of contracts referencing LIBOR are about 164 trillion yen of assets (e.g., loans), about 35 trillion yen of liabilities (e.g., deposits and bonds), and about 6,300 trillion yen of notional amounts of derivatives. Of these, respectively, about 60% of assets (about 97 trillion yen), about 50% of liabilities (about 17 trillion yen), and about 50% of derivatives (about 3,200 trillion yen of notional amounts) will mature beyond end-2021.

The bulk of contracts reference USD LIBOR, followed by JPY LIBOR. Contracts referencing EUR, GBP, and CHF LIBOR are limited.

In terms of amounts outstanding, about 60% of asset-side contracts are on loans. On the liability side, deposits and bonds account for about 13% and about 12%, respectively.

A very few contracts incorporate fallback provisions, the survey shows.

Almost all the entities have either developed a framework that can continuously track the volume of contracts referencing LIBOR or recognized the approximate volume. Approximately 85% of the entities have identified or roughly identified business operations affected by the LIBOR transition.

In terms of what needs to be done, the authorities advise financial institutions with a large number of contracts maturing beyond end-2021 with no fallback provisions to press ahead with necessary actions for customers given the limited time available. They need to promptly set policies on new products referencing RFR and on new contracts referencing LIBOR, so that the number of contracts referencing LIBOR will not increase.

In addition, financial institutions with a larger number of contracts need to strengthen coordination among customer services, back office, and legal sections as they may incur more costs on those sections than anticipated. Even if they have fallback provisions, if they take the “amendment approach,” they need to prepare for scenarios where a number of consultations with customers can arise at one time.

Read this next

Metaverse Gaming NFT

DCentral Miami brings together all of Web3, NFT, DeFi, Metaverse

The world’s biggest Web3 meeting entitled DCENTRAL Miami is set to take place November 28-29, featuring a lineup of some of the biggest and most influential names in the blockchain space.

Digital Assets

Crypto ban expands across UK banks as Starling joins ‎crackdown

UK digital bank Starling has banned ‎all customer payments related to cryptocurrencies, another blow for the crypto traders ‎who recently saw a sizable number of banks deciding not to ‎finance the wobbly asset class.‎

Interviews

Markets Direct at FIA EXPO 2022: Traders know what they want from brokers

The FIA Expo 2022, one of the most prestigious events within the global derivatives trading industry, took place in Chicago on 14 & 15 November.

Interviews

FIA Expo 2022: TNS addresses public cloud limitations with hybrid infrastructure

November is the month of the FIA Expo, one of the largest futures and options conferences in the world, bringing together regulators, exchanges, software vendors, and brokers in one place: the Sheraton Grand Chicago Riverwalk. 

Retail FX

Italy’s regulator blacks out Finance CapitalFX, MFCapitalFX

Italy’s Commissione Nazionale per le Società e la Borsa (CONSOB) has shut down new websites in an ongoing clampdown against firms it accuses of illegally promoting investment products in the country.

Retail FX

Suspected leader of Honk Kong ramp-and-dump scam appears in court

A leader of a sophisticated ramp-and-dump scheme made his first court appearance in a Hong Kong court today, charged with market manipulation and various criminal offences. The case stems from an earlier joint operation of Hong Kong’s financial watchdog, the Securities and Futures Commission (SFC), and the local police. 

Institutional FX

Cboe’s James Arrante discusses growing demand for fixed income, FX algo

We caught up with James Arrante, senior director of FX & US treasuries product and business management at Cboe Global Markets, to uncover emerging trends in the FX and fixed income markets and learn more about the bourse operator’s recent initiatives.

Retail FX

Eurotrader acquires UK broker Petra Asset Management

Eurotrader Group has formally entered into the UK market with the acquisition of FCA-regulated broker, previously named Petra Asset Management Ltd. The new entity operates under the brand name Eurotrade Capital Ltd.

Inside View, Retail FX

The Game of Chess Continues – OPEC, China and the Oil Market

Over the past decade, the US has been complaining about the amount of power which the BRIC group, and specifically China, has on the global economy. BRIC stands for Brazil, Russia, India and China; these were the world’s fastest growing economies. Only in the past 10 months, the US has turned their attention toward OPEC due to the prices of fuel. Nevertheless, China seems to have a strong influence even over the price of crude oil.

<