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    ISDA Consults on Implementation of Fallbacks for Certain Swap Rates

    June 11, 2021

    ISDA is consulting on the implementation of fallbacks for the sterling LIBOR ICE Swap Rate and for the USD LIBOR ICE Swap Rate. These swap rates are published by the ICE Benchmark Administration (IBA). This consultation follows the March announcement of FCA on future cessation and/or loss of representativeness of LIBOR. IBA is consulting on the intention to cease publication of the sterling LIBOR ICE Swap Rate for all tenors (from one to 30 years) immediately after their publication on December 31, 2021. While IBA has not yet consulted on any intention to cease publication of the USD LIBOR ICE Swap Rate immediately after publication on June 30, 2023 (or on any other date), the FCA announcement is expected to have implications for this swap rate as well. The consultation period ends on July 02, 2021 and will not be extended, with the results of this consultation expected to be published in July 2021.

    To address the potential cessation of the ICE swap rates, ISDA consultation seeks input on the implementation of:

    • Fallbacks for the sterling LIBOR ICE Swap Rate, as suggested in a paper published by the Non-Linear Task Force of the Working Group on Sterling Risk-Free Reference Rates in UK. The paper suggests a fallback to SONIA ICE Swap Rate plus the spread that applies in the fallbacks for GBP LIBOR with a convexity adjustment to account for differences in payment frequencies between the fixed and floating legs of GBP LIBOR ICE Swap Rate and SONIA ICE Swap Rate. On May 05, 2021, IBA started publishing GBP SONIA Spread-Adjusted ICE Swap Rate "Beta" settings, which are calculated based on the suggested fallback methodology set out in the paper. IBA has indicated that it will announce in due course if and when GBP SONIA Spread Adjusted ICE Swap Rate settings will be made available for use as a fallback in the financial instruments referencing GBP LIBOR ICE Swap Rate.
    • Fallbacks for the USD LIBOR ICE Swap Rate, as proposed in a paper published by a Subcommittee of the Alternative Reference Rates Committee (ARRC) in the US. The paper suggests a fallback to a SOFR swap rate (such as SOFR ICE Swap Rate, if and when it is published) plus the spread that applies in the fallbacks for USD LIBOR with a convexity adjustment to account for differences in payment frequencies and day-count conventions between the fixed and floating legs of USD LIBOR ICE Swap Rate and a SOFR swap rate. IBA has indicated that it will consider publishing a fallback for the USD LIBOR ICE Swap Rate based on the suggested fallback methodology set out in the paper if and when it publishes the SOFR ICE Swap Rate.

    To implement suggestions from these papers by the UK Taskforce and the US ARRC Subcommittee, ISDA proposes to publish amendments to the GBP LIBOR ICE Swap Rate and the USD LIBOR ICE Swap Rate Rate Options listed in Section 7 of the 2006 ISDA Definitions. ISDA also proposes to publish amendments to the relevant settlement provisions in Sections 13 and 18 of the 2006 ISDA Definitions to incorporate the fallbacks for the GBP LIBOR ICE Swap Rate and USD LIBOR ICE Swap Rate suggested in the papers. ISDA has prepared drafts of these amendments, which are in the near final form; however, ISDA may need to make technical, administrative, and/or stylistic changes before they are published. Based on feedback to this consultation, ISDA may publish these amendments as a Supplement to the 2006 ISDA Definitions (the substance of which would then be translated into the 2021 ISDA Interest Rate Derivatives Definitions). On publication of such a Supplement, all transactions incorporating the 2006 ISDA Definitions that are entered into on or after the effective date of the Supplement will include the amended terms (that is, the updated fallback provisions). ISDA also intends to publish template language that counterparties could use to negotiate bilateral amendments for incorporation of the amended terms, and therefore the fallback provisions, in legacy derivative contracts. 

     

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    Comment Due Date: July 02, 2021

    Keywords: International, Europe, UK, Banking, Securities, LIBOR, Interest Rate Benchmarks, Benchmark Reforms, Fallback Provisions, USD LIBOR, Sterling LIBOR, ICE Swap Rates, SOFR, FCA, IBA, ISDA

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