International Swaps and Derivatives Association Consults Further on Fallbacks for the Cessation of Benchmarks

The International Swaps and Derivatives Association has published two consultation papers on fallbacks for benchmarks. The first consultation paper concerns proposed amendments to ISDA's standard documentation to implement fallbacks based on alternative risk-free rates for certain key Interbank Offered Rates (USD LIBOR, Hong Kong's HIBOR, Canada's CDOR and Singapore's SOR), should the relevant IBOR be permanently discontinued. ISDA is intending to amend and restate the rate options in the 2006 ISDA Definitions to ensure that a fallback will apply to derivative transactions entered into on or after the effective date of the amendments and incorporate the 2006 ISDA Definitions. ISDA also intends to publish a protocol to help ensure inclusion of the fallbacks in pre-existing derivative transactions. This consultation follows ISDA's consultation last July on these changes for GBP LIBOR, CHF LIBOR, JPY LIBOR, TIBOR, Euroyen TIBOR and BBSW. ISDA confirms that the feedback to that July 2018 consultation indicates that market participants prefer the "compounded setting in arrears rate" to address the difference in tenors, and the "historical mean/median approach" to address the difference in risk premia. Based on the feedback to both of these consultations, ISDA intends to implement fallbacks for the relevant benchmarks by the end of 2019.

The second consultation paper requests feedback on the preferred approach to addressing pre-cessation issues in derivatives that reference LIBOR and other IBORs categorized as critical benchmarks under the EU Benchmarks Regulation, and that are determined by a regulator to no longer be representative of an underlying market. Any amendments to ISDA documentation arising from this consultation would be in addition to the changes implemented from the fallbacks that ISDA implements to address the permanent cessation of an IBOR.

Both of the consultations close on July 12, 2019.

View the consultation paper on fall backs for derivatives referencing US dollar LIBOR, CDOR, HIBOR and SOR.

View details of ISDA's first consultation on implementing fall backs for alternative RFRs.

View the consultation on pre-cessation issues.

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