ISDA announced that it will re-consult on how to implement pre-cessation fallbacks. The new consultation is expected to be published later this month and will ask if the 2006 ISDA Definitions should be amended to include fallbacks that would apply to all covered derivatives, following the permanent cessation of an interbank offered rate (IBOR) or a non-representative pre-cessation event, whichever occurs first. Based on the results of the consultation, ISDA will move quickly to deliver the appropriate, industry endorsed fallback solution later this year.
Under this scenario, a single protocol would also be launched to allow participants to include both pre-cessation and permanent cessation fallbacks within their legacy derivatives trades. If there is insufficient support for this approach, then ISDA will amend the 2006 ISDA Definitions to enable derivatives counterparties to incorporate pre-cessation fallbacks alongside the permanent cessation fallbacks if chosen. A protocol for amending legacy derivatives would also be published with a similar ability to opt-in to pre-cessation fallbacks when implementing the permanent cessation fallbacks.
The decision to re-consult on pre-cessation fallbacks follows the release of new information by FCA and ICE Benchmark Administration on the length of time the LIBOR may be published following a regulatory statement that the benchmark is no longer representative of the underlying market. Furthermore, an earlier consultation on pre-cessation fallbacks last year failed to achieve market consensus on how to implement pre-cessation fallbacks in derivatives contracts.
ISDA had intended to publish amendments to the 2006 ISDA Definitions to incorporate permanent cessation fallbacks in the first half of 2020, along with a protocol to include permanent cessation fallbacks into legacy trades. The timing of publication will now be subject to the results of the new consultation. In the meantime, ISDA will continue to work with Bloomberg to publish indicative spread calculations and all-in fallback rates during the first half of 2020 to help facilitate operational readiness for fallback implementation.
Keywords: International, Banking, Insurance, Securities, Pre-Cessation Triggers, Fallback Provisions, ISDA Definitions, IBORs, Benchmark Reforms, OTC Derivatives, Interest Rate Benchmark, ISDA
ECB published a decision allowing the euro area banks under its direct supervision to exclude certain central bank exposures from the leverage ratio.
ESAs launched a survey seeking feedback on the presentational aspects of product templates under the Sustainable Finance Disclosure Regulation (SFDR or Regulation 2019/2088).
ECB published input of the European System of Central Banks (ESCB) into the EBA feasibility report on reducing the reporting burden for banks in EU.
ECB finalized the guide on assessment methodology for the internal model method for calculating exposure to counterparty credit risk (CCR) and the advanced method for own funds requirements for credit valuation adjustment (A-CVA) risk.
EBA published an Opinion addressed to EC to raise awareness about the opportunity to clarify certain issues related to the definition of credit institution in the upcoming review of the Capital Requirements Directive and Regulation (CRD and CRR).
APRA is consulting on updates to ARS 210.0, the reporting standard that sets out requirements for provision of information on liquidity and funding of an authorized deposit-taking institution.
FED released hypothetical scenarios for a second round of stress tests for banks.
FED is proposing to temporarily revise the capital assessments and stress testing reports (FR Y-14A/Q/M) to implement the changes necessary to conduct stressed analysis in connection with the re-submission of capital plans, using data as of June 30, 2020.
FED adopted a proposal to extend for three years, with revision, the information collection under the market risk capital rule (FR 4201; OMB No. 7100-0314).
EBA published a voluntary online survey seeking input from credit institutions on their practices and future plans for Pillar 3 disclosures on the environmental, social, and governance (ESG) risks.