ISDA and Bloomberg announced that Bloomberg Index Services Limited (BISL) has begun calculating and publishing fallbacks that ISDA intends to implement for certain key interbank offered rates (IBORs). Benchmark fallbacks are replacement rates that would apply to derivatives trades referencing a particular benchmark. These would take effect if the relevant benchmark becomes unavailable while market participants continue to have exposure to that rate. Specific fallback rates are set out in the 2006 ISDA Definitions. ISDA will soon publish amendments to its standard interest rate derivatives definitions to incorporate these new fallbacks, which are adjusted versions of various risk-free rates. ISDA also published a fact sheet on the new fallbacks.
Risk-free rates are overnight rates without a credit component and are inherently different from IBORs, which have term structures and credit sensitive elements. Accordingly, ISDA is implementing adjusted versions of the risk-free rates to serve as IBOR fallbacks based on the feedback received from several market consultations regarding these differences. Calculations published by BISL include the adjusted risk-free rate (compounded in arrears), the spread adjustment, and the "all in" IBOR fallback rates for the following IBORs across various tenors: the Australian dollar Bank Bill Swap Rate (BBSW), the Canadian Dollar Offered Rate (CDOR), Swiss franc LIBOR, EURIBOR, EUR LIBOR, Sterling LIBOR, HIBOR, Euroyen TIBOR, Yen LIBOR, TIBOR, and the USD LIBOR.
Bloomberg will make the adjusted risk-free rates, spread adjustments, and all-in fallback rates broadly available to industry participants through various distribution channels, including the Bloomberg Terminal® and other Bloomberg solutions such as the desktop API and Bloomberg Data License. The real-time data will also become available through authorized redistributors and will be publicly available on the Bloomberg website on a delayed basis. While the fallbacks are not separate benchmarks from the risk-free rates for regulatory purposes, the calculations are being performed by BISL, which has been authorized by FCA as a regulated UK benchmark administrator under the EU Benchmarks Regulation. BISL has conducted index administration since 2014, including serving as the administrator of the Bloomberg Barclays fixed-income indices.
Keywords: International, Banking, Securities, IBORs, LIBOR, Risk-Free Rates, BISL, Interest Rate Benchmarks, Benchmark Fallbacks, Benchmark Reforms, ISDA
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