Featured Product

    ISDA Updates Product Table on RFR Conventions and IBOR Fallbacks

    September 28, 2020

    ISDA has amended the standard documentation for interest rate derivatives that reference key interbank offered rates (IBORs) to include information on fallback rates that will apply on the permanent discontinuation of these IBORs and, in the case of LIBOR, if LIBOR becomes "non-representative." The amended document includes a table that sets out how the fallbacks would function for different products, including certain non-linear products. For comparison, the chart sets out standard conventions for the same products that reference IBORs and the standard and/or expected conventions for such products that reference risk-free rates (RFRs) as of the date of the document. ISDA has also published a set of frequently asked questions (FAQs) on IBOR fallback rate adjustments.

    Counterparties may include the amended documentation with the fallback triggers and rates in their legacy transactions by either adhering to a "protocol" published by ISDA or entering into bilateral amendments. The fallback rates referenced in the amended documentation will be as published by Bloomberg for the relevant IBOR and tenor. The amended ISDA documentation will direct counterparties to first apply linear interpolation if the relevant IBOR is available for the next longer and next shorter tenor. If linear interpolation is not available, counterparties are directed to use the published fallback rate that corresponds to the date on which they were to reference the relevant IBOR, provided that this fallback rate appears on the relevant screen at least two business days prior to the relevant payment date. If the fallback rate for the referenced IBOR’s original fixing date is not produced by Bloomberg two business days prior to the payment date, then the amended documentation of ISDA provides for counterparties to reference the fallback rate that has been published for the most recent original fixing date for the relevant IBOR in the relevant tenor.

    ISDA has produced language that counterparties could use to replace the fallbacks with triggers and fallbacks that duplicate those in hedged instruments. For certain products, counterparties may want to consider whether to amend the business days or payment dates and/or agree to use a fallback rate for a date other than the referenced IBOR’s original fixing date. In some cases, such amendments may better align the outcomes with the counterparties’ original intentions and/or with the desired outcomes for hedged instruments. Any such amendments would be strictly based on agreements between the relevant counterparties. The documentation of each  transaction remains the responsibility of the parties concerned.

     

    Related Links

    Keywords: International, Banking, Securities, Interest Rate Benchmarks, IBOR, Derivatives, Risk-Free Rate, LIBOR, Benchmark Reforms, Benchmark Fallbacks ISDA

    Related Articles
    News

    ESAs Publish Reporting Templates for Financial Conglomerates

    ESAs published the final draft implementing technical standards on reporting of intra-group transactions and risk concentration of financial conglomerates subject to the supplementary supervision in EU.

    January 18, 2021 WebPage Regulatory News
    News

    EBA Publishes Report on Asset Encumbrance of Banks in EU

    EBA published the annual report on asset encumbrance of banks in EU.

    January 18, 2021 WebPage Regulatory News
    News

    US Agencies Publish Updates for Call Reports, FFIEC 101, and FR Y-9C

    FED updated the reporting form and instructions for the FR Y-9C report on consolidated financial statements for holding companies.

    January 15, 2021 WebPage Regulatory News
    News

    EBA Proposes Guidelines for Establishing Intermediate Parent Entities

    EBA issued a consultation paper on the guidelines on monitoring of the threshold and other procedural aspects of the establishment of intermediate EU parent undertakings, or IPUs, as laid down in the Capital Requirements Directive.

    January 15, 2021 WebPage Regulatory News
    News

    EC Adopts Financial Reporting Changes Arising from Benchmark Reforms

    EC published Regulation 2021/25 that addresses amendments related to the financial reporting consequences of replacement of the existing interest rate benchmarks with alternative reference rates.

    January 14, 2021 WebPage Regulatory News
    News

    BIS Bulletin Examines Key Elements of Policy Response to Cyber Risk

    BIS published a bulletin, or a note, that examines the cyber threat landscape in the context of the pandemic and discusses policies to reduce risks to financial stability.

    January 14, 2021 WebPage Regulatory News
    News

    HMT Updates List of Post-Brexit Equivalence Decisions in UK

    HM Treasury, also known as HMT, has updated the table containing the list of the equivalence decisions that came into effect in UK at the end of the transition period of its withdrawal from EU.

    January 14, 2021 WebPage Regulatory News
    News

    EBA Issues Erratum for Technical Package on Reporting Framework 3.0

    EBA published an erratum for technical package on phase 1 of the reporting framework 3.0.

    January 14, 2021 WebPage Regulatory News
    News

    APRA Publishes FAQ on Measurement of Credit Risk Weighted Assets

    APRA updated a frequently asked question (FAQ), for authorized deposit-taking institutions, on the measurement of credit risk weighted assets.

    January 14, 2021 WebPage Regulatory News
    News

    ECB Letter Sets Out Strategies to Address Issue of Nonperforming Loans

    ECB published a letter from Andrea Enria, the Chair of the Supervisory Board of ECB, answering questions raised by the President of the Bundestag (the German federal parliament) on how ECB assesses the financial stability of the euro area in the context of the significant level of nonperforming loans.

    January 14, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 6450