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.
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
Previous ArticleCBIRC Holds Conference on Development of Sustainable Finance
The Bank of England (BoE) published a consultation paper on approach to setting minimum requirement for own funds and eligible liabilities (MREL), an operational guide on executing bail-in, and a statement from the Deputy Governor Dave Ramsden.
The European Banking Authority (EBA) is seeking preliminary input on standardization of the proportionality assessment methodology for credit institutions and investment firms.
Certain regulatory authorities in the US are extending period for completion of the review of certain residential mortgage provisions and for publication of notice disclosing the determination of this review until December 20, 2021.
The Prudential Regulation Authority (PRA) published the policy statement PS18/21, which introduces an amendment in the definition of "higher paid material risk taker" in the Remuneration Part of the PRA Rulebook.
The European Banking Authority (EBA) published its annual report on asset encumbrance in banking sector.
The European Banking Authority (EBA) published a methodological guide to mystery shopping.
The Australian Prudential Regulation Authority (APRA) released a letter to authorized deposit-taking institutions to provide an update on key policy settings for the capital framework reforms, which will come into effect from January 01, 2023.
The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) published a report that assesses the business continuity planning activities of financial market infrastructures or FMIs.
The Bank of England (BoE) published questions and answers (Q&A) on OSCA to BEEDS migration for statistical reporting as well a presentation from the project overview session held with statistical reporters.
The Basel Committee on Banking Supervision (BCBS) is consulting on a technical amendment to the Basel Framework to reflect a new process reviewing the global systemically important bank (G-SIB) assessment methodology.