Featured Product

    ISDA on Responses to Consultation on Pre-cessation Issues for LIBOR

    October 21, 2019

    ISDA published a report that summarizes responses to the consultation on pre-cessation issues for London Interbank Offered Rate (LIBOR) and certain other interbank offered rates (IBORs). The consultation sought comments on how derivatives contracts should address a regulatory announcement that LIBOR or certain other IBORs categorized as critical benchmarks under the EU Benchmarks Regulation are no longer representative of an underlying market. The responses to the consultation indicate that a majority of market participants would not be content to continue referencing a covered IBOR in either existing or future derivative contracts, post a public statement from the supervisor of that covered IBOR that it was no longer representative.

    The consultation responses suggested that market participants have serious reservations about the continued use of IBORs that are are no longer representative of an underlying market. Respondents to the consultation broadly desired a uniform transition to fallback rates across products and currencies. However, the respondents expressed a wide variety of views on whether and how to implement a pre-cessation trigger for covered IBORs, related to non-representativeness for derivatives. In general, the respondents fell into four general categories with respect to how to implement a pre-cessation trigger, without a clear majority in any one category:

    • Those who supported adding a pre-cessation trigger to the permanent cessation triggers in the hard wired amendment to the 2006 ISDA Definitions but did not specifically address a preference regarding optionality or flexibility (14.6% of respondents)
    • Those who supported adding a pre-cessation trigger to the permanent cessation triggers in the hard wired amendment to the 2006 ISDA Definitions and opposed the publication of a protocol with optionality or flexibility (26.97% of respondents)
    • Those who supported the use of a pre-cessation trigger and supported implementation with optionality and flexibility (22.5% of respondents)
    • Those who opposed the use of a pre-cessation trigger (28.1% of respondents)

    Overall, the consultation did not yield a consensus among market participants regarding how to address pre-cessation issues related to representativeness. Although a majority of respondents (64.0%) supported the inclusion of a pre-cessation trigger in the amended 2006 ISDA Definitions, the responses revealed significant disagreement about how to implement such a trigger.

    The consultation took place between May and July. ISDA received 89 responses to the consultation from entities in sixteen countries across the Americas, Europe, Asia-Pacific, and Africa. Respondents included asset managers, banks, pension funds, insurance companies, government entities, financial services firms, exchanges and clearinghouses, and industry and trade associations. The consultation followed a request by the FSB Official Sector Steering Group; the request was for ISDA to obtain market feedback on the events that should trigger a move to a spread-adjusted fallback rate for LIBOR. 

     

    Related Links

    Keywords: International, Banking, Insurance, Securities, Pensions, LIBOR, IBOR, Fallback Provisions, Derivative Contracts, Pre-Cessation Triggers, Benchmarks Regulation, ISDA

    Related Articles
    News

    EC to Defer Application of SFDR Standards Till July 2022

    The European Commission (EC) announced plans to defer the application of 13 regulatory technical standards under the Sustainable Finance Disclosure Regulation (2019/2088) by six months, from January 01, 2022 to July 01, 2022.

    July 23, 2021 WebPage Regulatory News
    News

    BoE Consults on Approach to Setting MREL, Publishes Bail-In Guidance

    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.

    July 22, 2021 WebPage Regulatory News
    News

    EBA Seeks Views on Proportionality Assessment Methodology

    The European Banking Authority (EBA) is seeking preliminary input on standardization of the proportionality assessment methodology for credit institutions and investment firms.

    July 22, 2021 WebPage Regulatory News
    News

    US Agencies Propose Changes to Call Reports and Instructions

    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.

    July 22, 2021 WebPage Regulatory News
    News

    PRA Finalizes Rulebook Definition of Higher Paid Material Risk-Taker

    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.

    July 21, 2021 WebPage Regulatory News
    News

    EBA Examines Asset Encumbrance in Banking Sector

    The European Banking Authority (EBA) published its annual report on asset encumbrance in banking sector.

    July 21, 2021 WebPage Regulatory News
    News

    EBA Publishes Methodological Guide to Mystery Shopping

    The European Banking Authority (EBA) published a methodological guide to mystery shopping.

    July 21, 2021 WebPage Regulatory News
    News

    APRA Issues Update on Capital Reform Policy Settings for Banks

    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.

    July 21, 2021 WebPage Regulatory News
    News

    CPMI-IOSCO Assess Continuity Planning of Market Infrastructures

    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.

    July 21, 2021 WebPage Regulatory News
    News

    ESMA Responds to Proposal Related to Sustainability Standards Board

    The European Securities and Markets Authority (ESMA) has responded to the IFRS consultation on targeted amendments to the IFRS Foundation constitution to accommodate an International Sustainability Standards Board (ISSB) to set IFRS Sustainability Standards.

    July 21, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 7283