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    ISDA Summarizes Results of Consultation on IBOR Derivatives Fallbacks

    February 24, 2020

    ISDA published a statement summarizing responses to the supplemental consultation on the spread and term adjustments that would apply to fallbacks for derivatives referencing euro LIBOR and EURIBOR. After considering the responses received from 57 entities, ISDA expects to proceed with developing fallbacks for inclusion in its standard definitions based on the compounded setting in arrears rate with a backward shift and the five-year historical median approach to the spread adjustment for EUR LIBOR and EURIBOR.

    Majority of the respondents agreed with an implementation based on the "compounded setting in arrears rate approach with a backward-shift adjustment" and a spread adjustment based on a "historical median over a five-year lookback period," for fallbacks in derivatives referencing EUR LIBOR and EURIBOR and other less widely used interbank offered rates (IBORs). Respondents cited both support for the substance of these approaches and a strong desire to apply a consistent approach across all benchmarks covered by this supplemental consultation and the prior consultations.In the coming weeks, ISDA expects to publish additional information, including anonymized and aggregated responses to the supplemental consultation. 

    The supplemental consultation, which was launched in December 2019, covered technical issues related to the adjustment methodology and sought feedback on whether the adjustments would be appropriate for lesser-used IBORs if ISDA implements fallbacks for those benchmarks in the future. This supplemental consultation followed three earlier consultations—two setting out options for the adjustments that will apply to the relevant risk-free rates if fallbacks are triggered for derivatives referencing nine IBORs and one on the final parameters for the adjustment methodology.

     

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    Keywords: International, Banking, Securities, IBORs, LIBOR, Risk-free Rates, Interest Rate Benchmarks, EURIBOR, Fallback Provisions, Derivatives, Responses to Consultation, ISDA

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