ISDA Paper Outlines Developments on Risk-Free Rate Adoption in 2020

The paper notes the following key developments:

• Calculation and publication by Bloomberg of IBOR fallback rates based on adjusted risk-free rates for key IBORs in the first half of 2020. Additionally, ISDA will publish amendments to the 2006 ISDA Definitions incorporating the adjusted risk-free rate fallbacks in new contracts referencing the covered IBORs. ISDA will also publish a protocol that will enable market participants to include the amended 2006 ISDA Definitions with fallbacks in legacy IBOR contracts.
• Change of discounting and price alignment interest/price alignment amount by central counterparties for cleared euro-denominated derivatives from the Euro Overnight Index Average (EONIA) to the Euro Short-Term Rate (€STR) in June 2020.
• Change of discounting and price alignment interest/price alignment amount by central counterparties for cleared US dollar-denominated interest rate derivatives from the Effective Federal Funds Rate (EFFR) to the Secured Overnight Financing Rate (SOFR) in October 2020.
• Expected change of the market convention for sterling interest rate swaps from sterling LIBOR to Sterling Overnight Index Average (SONIA) on March 02, 2020.
• Expected continued growth in the issuance of risk-free rate based cash products that will likely propel the need for hedging activity and increase the demand for risk-free rate based derivative products.

Related Links

• Notification
• Research Note (PDF)

Keywords: International, Banking, Securities, ISDA Definitions, ISDA Protocol, Risk-Free Rates, LIBOR, IBORs, Interest Rate Benchmark, Benchmark Fallbacks