Featured Product

    ISDA Response Letter to FSB on Pre-Cessation Triggers for Derivatives

    December 04, 2019

    ISDA has submitted a letter to the Official Sector Steering Group (FSB OSSG) of FSB on the pre-cessation triggers for derivative fallbacks. The communication is in response to a letter sent by the FSB OSSG to ISDA in November 2019. ISDA recognizes the importance of both scenarios outlined by FSB OSSG—the permanent cessation of a key Interbank Offered Rate (IBOR) and a determination by the UK FCA that LIBOR is no longer representative of the underlying market but continues to be published. ISDA remains fully focused on the timely delivery of a fallback solution to prevent the systemic disruption that could occur if LIBOR or another key IBOR ceases.

    As the work on permanent cessation fallbacks will be finalized, ISDA will simultaneously work with regulators and the industry to increase market understanding of the implications of a “non-representative” LIBOR and will attempt to build a consensus on how to implement the pre-cessation fallbacks, in line with the FSB OSSG’s request. To further increase market understanding, ISDA believes it is critical that market participants also receive further clarity on the following:

    • A statement from UK FCA and ICE Benchmark Administration that the “reasonable period” during which a “non-representative” LIBOR would be published would be minimal after FCA announces that LIBOR is no longer representative.
    • A public and definitive confirmation directly from the central counterparties (CCPs) clearing LIBOR derivatives or their regulatory supervisor.

    In light of the feedback received in the pre-cessation consultation, the strategy described in the November 2019 letter would require ISDA to re-consult with the market on a single documentation approach and engage with relevant competition authorities. ISDA highlighted that it is prepared to do so once the market has the benefit of appropriate clarity on the issues described above. If a strong majority of market participants supports a “non-representativeness” pre-cessation fallback trigger for LIBOR derivatives in response to the consultation, then ISDA would work to implement pre-cessation fallbacks—either along with the documentation for permanent cessation fallbacks or as a second step to complement the permanent cessation fallbacks. In any event, ISDA will offer standard language for a “non-representativeness” pre-cessation fallback trigger that market participants could use.

    ISDA is on track to finalize the substantive portion of its work to develop permanent cessation fallbacks by the end of 2019 and to facilitate implementation during the first half of 2020. On November 15, 2019, ISDA released the results of a third successful industry consultation on the adjustment methodologies for permanent cessation fallbacks rates. ISDA will shortly issue a brief supplemental consultation to confirm the suitability of these adjustments for fallbacks in derivatives referencing euro LIBOR and EURIBOR. On completion of this consultation in the first quarter of 2020, ISDA will publish the Supplement to the 2006 ISDA Definitions containing the fallbacks and will open, for adherence, a protocol to include these fallbacks in existing derivatives. The amendments to new and existing derivatives contracts will take effect approximately three months later, in the second quarter of 2020. Based on feedback and support from market participants, ISDA believes that the new documentation will provide a critical backstop in contracts that continue to reference LIBOR or another key IBOR if and when that IBOR ceases.

     

    Related Links

    Keywords: International, Banking, Securities, LIBOR, IBOR, Pre-cessation Triggers, Interest Rate Benchmarks, Derivatives, Fallback, FCA, FSB, ISDA

    Related Articles
    News

    EU Amends CRD4 and CRD5 as Part of Capital Markets Recovery Package

    EU published Directive 2021/338, which amends the Markets in Financial Instruments Directive (MiFID) II and the Capital Requirements Directives (CRD 4 and 5) to facilitate recovery from the COVID-19 crisis.

    February 26, 2021 WebPage Regulatory News
    News

    EU Committee Recommends Systemic Risk Buffer of 4.5% in Norway

    The Standing Committee of the European Free Trade Association (EFTA) recommended that a systemic risk buffer level of 4.5% for domestic exposures can be considered appropriate for addressing the identified systemic risks to the stability of the financial system in Norway.

    February 25, 2021 WebPage Regulatory News
    News

    PRA Clarifies Approach to Onshoring of Credit Risk Rules for UK Banks

    In a recent statement, PRA clarified its approach to the application of certain EU regulatory technical standards and EBA guidelines on standardized and internal ratings-based approaches to credit risk, following the end of the Brexit transition.

    February 25, 2021 WebPage Regulatory News
    News

    FSB Sets Out Work Priorities for 2021

    In a recently published letter addressed to the G20 finance ministers and central bank governors, the FSB Chair Randal K. Quarles has set out the key FSB priorities for 2021.

    February 25, 2021 WebPage Regulatory News
    News

    EU Publishes Corrigendum to Revised Capital Requirements Regulation

    EU published, in the Official Journal of the European Union, a corrigendum to the revised Capital Requirements Regulation (CRR2 or Regulation 2019/876).

    February 25, 2021 WebPage Regulatory News
    News

    ESAs Issue Statement on Application of Sustainability Disclosures Rule

    ESAs published a joint supervisory statement on the effective and consistent application and on national supervision of the regulation on sustainability-related disclosures in the financial services sector (SFDR).

    February 25, 2021 WebPage Regulatory News
    News

    EC Consults on Crisis Management and Deposit Insurance Frameworks

    EC published a public consultation on the review of crisis management and deposit insurance frameworks in EU.

    February 25, 2021 WebPage Regulatory News
    News

    HKMA Enhances Loan Guarantee Scheme to Alleviate Pressure on SMEs

    HKMA announced that enhancements will be made to the Special 100% Loan Guarantee of the SME Financing Guarantee Scheme (SFGS) and the application period will be extended to December 31, 2021.

    February 24, 2021 WebPage Regulatory News
    News

    EBA Proposes Standards for Supervisory Cooperation Under IFD

    EBA launched consultations on the regulatory and implementing technical standards on cooperation and information exchange between competent authorities involved in prudential supervision of investment firms.

    February 24, 2021 WebPage Regulatory News
    News

    BoE Addresses Banks in Scope of First Resolvability Assessment

    BoE issued a letter to the CEOs of eight major UK banks that are in scope of the first Resolvability Assessment Framework (RAF) reporting and disclosure cycle.

    February 24, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 6629