ISDA launched the IBOR Fallbacks Supplement and the IBOR Fallbacks Protocol, with both becoming effective on January 25, 2021. The Supplement and Protocol are intended to help reduce the systemic impact of a key interbank offered rate (IBOR) becoming unavailable while market participants continue to have exposure to that rate. BoE announced that it has signed up to the ISDA IBOR Fallbacks Protocol in respect of its own activities as a market participant.
The IBOR Fallbacks Supplement will amend the ISDA standard definitions for interest rate derivatives to incorporate robust fallbacks for derivatives linked to certain IBORs, with the changes coming into effect on January 25, 2021. From that date, all new cleared and non-cleared derivatives that reference the definitions will include the fallbacks. The IBOR Fallbacks Protocol will enable market participants to incorporate the revisions into their legacy non-cleared derivatives trades with other counterparties that choose to adhere to the Protocol. The fallbacks for a particular currency will apply following a permanent cessation of the IBOR in that currency. For derivatives that reference LIBOR, the fallbacks in the relevant currency would also apply following a determination by the UK FCA that LIBOR in that currency is no longer representative of its underlying market. In each case, the fallbacks will be adjusted versions of the risk-free rates identified in each currency.
At launch, 257 derivatives market participants had adhered to the Protocol during the two-week pre-launch "escrow period." The ISDA Protocol provides an efficient mechanism for market participants to amend the existing derivative contracts based on LIBOR and a range of other benchmarks to include fallback language. The new fallback language has been developed by ISDA at the request of FSB, working with a wide range of market participants and international authorities. FSB has strongly encouraged the widespread adoption of this Protocol.
Keywords: International, Europe, UK, Banking, Securities, Interest Rate Benchmark, IBOR, Derivatives, LIBOR, Fallback Protocol, Benchmark Reforms, BoE
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