The transition from CDOR to CORRA: An urgent priority for Canadian businesses

31 August, 2022

Samantha Paisley

Wholesale Banking and Capital Markets Consulting Leader, PwC Canada

The path towards financial benchmark reforms has become clearer in Canada, with the recent announcement that the Canadian Dollar Offered Rate (CDOR) will cease publication by June 28, 2024. This is a very significant change requiring organizations to assess to what degree and how they’ll be impacted by the transition, especially those with financial contracts or instruments that reference CDOR. While many financial institutions will be aware of the change and have taken steps already, a broad range of other players—from corporate treasury departments and financing organizations to government agencies such as business development banks and workers’ compensation boards— have financial contracts that reference the Canadian benchmark.

A major change as CDOR cessation approaches

The transition will take place in a two-phased approach spanning June 2023 to June 2024. Some organizations will have previous experience with the transition away from the London Interbank Offered Rate (LIBOR) in other currencies, but the coming replacement of CDOR with the Canadian Overnight Repo Rate Average (CORRA) is a much bigger impact for Canada’s financial system. And for those that weren’t as significantly impacted by the LIBOR transition, there’s a lot they need to be thinking about—and doing—now. The first phase is coming quickly, with the majority of all new derivative products shifting from CDOR to CORRA by June 30, 2023. The next phase, in which all remaining products will transition from CDOR, is just a year later.

To get a sense of the magnitude of the transition, consider the size of the CDOR market: $20 trillion. That’s about 10 times Canada’s annual gross domestic product and a reflection of how widespread the use of CDOR is in transactions involving derivatives, bonds, loans and securitizations. In short, CDOR underpins a very wide range of transactions, including some that organizations may not be aware of. The shift creates impacts in many areas, from cash management to technology to tax, legal and accounting matters. And when you add on top of that the removal of the Bankers Acceptance product, it becomes even clearer how significant this is. So what can you do?

Key considerations for the CDOR-CORRA transition

Everyone is impacted. CDOR is ubiquitous—it’s everywhere and is embedded in everything. While organizations with LIBOR exposures will have a playbook to follow, it’s important to consider the wide ranges of issues all participants will need to address.

Some of the key considerations include:

As with previous LIBOR transitions, we expect the move to CDOR will present an evolving mix of new products and market innovations. Unlike LIBOR transitions in other currencies, CDOR cessation will bring the end of the Bankers Acceptance market in Canada. No clear substitute is identified to take its place, and all of the alternatives bring new complexities that will require an enhancement to technology and risk models. Firms will need to prepare for a wider product set that may include a highly anticipated term CORRA rate that’s yet to be defined.

What should you do now?

Number one

Stop adding new exposures to CDOR

A key initial step is to stop adding new positions linked to CDOR to allow exposures to expire over the next two years.

Number two

Solve for the remaining contracts

For the exposures that mature post cessation, assess your options, which could include relying on fallback language as well as proactive amendments and terminations. Key considerations include understanding linked positions and preserving their hedging status, minimizing tax implications and navigating a rapidly evolving interest rate environment.

Number three

Establish a new product strategy

Reassess your investment strategy and cash management approach in light of product developments in the market and evolving practices enabled by new technologies. This can help you move towards a more dynamic liquidity management function.

Helping you ensure sustained outcomes from your CDOR cessation journey

We’ve helped financial institutions of all sizes and footprints transition away from LIBOR and CDOR in areas including program mobilization and management, technology modernization, operations assessment, new product strategies, digitally enabled contract discovery and remediation and addressing tax and accounting implications.

These developments are also an opportunity to go beyond responding to the challenges presented by the CDOR transition to also update your product strategy and operating model for a dynamic interest rate environment.

Please reach out to discuss how we’ve helped organizations in the past as well as how you can use this opportunity to accelerate digital transformation and ensure sustained outcomes for the future.

Contact us

Samantha Paisley

Samantha Paisley

Wholesale Banking and Capital Markets Consulting Leader, PwC Canada

Tel: +1 416 869 2443

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