International Swaps and Derivatives Association Publishes FAQs on IBOR Fallback Rate Adjustments

The International Swaps and Derivatives Association has published a set of Frequently Asked Questions on Interbank Offered Rate Fallback Rate adjustments. The FAQs are part of ISDA's preparations for the sweeping changes being made to global interest rate benchmarks, which may see a transition from IBORs to overnight risk free rates. Parties to derivatives contracts that currently reference IBORs are being encouraged to include contractual fallback provisions providing for adjusted RFRs that could replace IBORs if they are discontinued before a contract is concluded. RFRs are structurally different to IBORs, hence why the RFRs must be adjusted in order to be incorporated into contracts that currently reference IBORs.

The FAQs provide an overview of ISDA's proposed contractual IBOR fallback provisions (which will cover a range of currencies including EUR LIBOR, EURIBOR, USD, GBP, CHF LIBOR, and JPY LIBOR). Amendments will be made to the ISDA definitions for derivative contracts that reference IBORs, incorporating fallbacks to adjusted RFRs that would apply if an IBOR is permanently discontinued. The FAQs also explain Bloomberg's role as the "adjustment services vendor" for IBOR fallback calculations, meaning Bloomberg will calculate and publish the adjustments to be utilized under the fallback provisions.

ISDA has also issued a series of consultations on various aspects of its proposals for IBOR fallbacks. The consultation papers, and their results, are published on ISDA's website. The latest consultation, on spread and term adjustments for fallbacks in derivatives referencing EUR LIBOR and EURIBOR, was published on December 18, 2019 and will close on January 21, 2020.

View ISDA's FAQS.

View ISDA's consultation on spread and term adjustments for EUR LIBOR and EURIBOR fallbacks.

View all ISDA Benchmark Fallbacks consultation papers and results.

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