ISDA Expects IBOR Fallbacks to be Effective by End of January 2021
ISDA issued a letter to regulators to flag that it now expects the supplement to the 2006 ISDA Definitions and the Interbank Offered Rate (IBOR) Fallbacks Protocol to be effective around mid- to late-January 2021. After nearly four years of work, ISDA is now on the cusp of publishing a supplement to the 2006 ISDA Definitions and the related protocol. However, the timetable hinges on ISDA receiving a positive business review letter from the U.S. Department of Justice (DoJ) and then finalizing work with competition authorities in other jurisdictions.
Once ISDA hears from the competition authorities, it will give market participants approximately two-week notice of the official launch date. During this short period, firms will be able to adhere to the protocol "in escrow." Parties will be able to sign up on a binding but non-public basis so their adherence takes effect as soon as the protocol launches. As there is no regulation requiring institutions to incorporate new fallbacks into legacy trades, having backing for the protocol from day one will hopefully establish strong support for use of the fallbacks, even without a regulatory edict. The supplement and protocol will officially launch after this escrow period. As with all ISDA protocols, the IBOR Fallbacks Protocol will be voluntary—firms could alternatively choose to make changes to their legacy contracts on a bilateral basis, or opt to keep their outstanding trades unchanged. The supplement and protocol will then take effect approximately three months later.
From that point on, all new derivatives referencing the 2006 ISDA Definitions will automatically include the updated fallbacks for covered IBORs. The changes will apply to legacy derivatives as well if both counterparties have adhered to the protocol or have agreed similar bilateral amendments. Certain central counterparties also plan to apply the updated fallbacks to all cleared over-the-counter derivatives from the effective date. It is s possible that regulators could make an announcement before the end of this year on the future of LIBOR after 2021—in fact, the FCA has suggested as much. However, if there is an announcement on post-2021 dates for the cessation and/or non-representativeness of LIBOR, then the spread adjustments set out under the fallback methodology would be calculated and frozen from that point. In other words, the calculation of the spread adjustment would occur in the same way, irrespective of whether a regulator announcement comes before or after the effective date of the supplement and protocol.
Related Links
Keywords: International, Banking, Securities, Benchmarks Reforms, Fallback Rate Benchmarks, IBOR, Timeline, Basel, ISDA
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Patrycja Oleksza
Applies proficiency and knowledge to regulatory capital and reporting analysis and coordinates business and product strategies in the banking technology area
Previous Article
EBA Finalizes Standards for Prudential Treatment of Software AssetsRelated Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.