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

    ISSB Sustainability Standards Expected to Become Global Baseline

    The finalization of the two sustainability disclosure standards—IFRS S1 and IFRS S2—is expected to be a significant step forward in the harmonization of sustainability disclosures worldwide.

    September 18, 2023 WebPage Regulatory News
    News

    IOSCO, BIS, and FSB to Intensify Focus on Decentralized Finance

    Decentralized finance (DeFi) is expected to increase in prominence, finding traction in use cases such as lending, trading, and investing, without the intermediation of traditional financial institutions.

    September 18, 2023 WebPage Regulatory News
    News

    BCBS Assesses NSFR and Large Exposures Rules in US

    The Basel Committee on Banking Supervision (BCBS) published reports that assessed the overall implementation of the net stable funding ratio (NSFR) and the large exposures rules in the U.S.

    September 14, 2023 WebPage Regulatory News
    News

    Global Agencies Focus on ESG Data, Climate Litigation and Nature Risks

    At the global level, supervisory efforts are increasingly focused on addressing climate risks via better quality data and innovative use of technologies such as generative artificial intelligence (AI) and blockchain.

    September 14, 2023 WebPage Regulatory News
    News

    ISSB Standards Shine Spotlight on Comparability of ESG Disclosures

    The finalization of the IFRS sustainability disclosure standards in late June 2023 has brought to the forefront the themes of the harmonization of sustainability disclosures

    August 22, 2023 WebPage Regulatory News
    News

    EBA Issues Several Regulatory and Reporting Updates for Banks

    The European Banking Authority (EBA) recently issued several regulatory publications impacting the banking sector.

    August 10, 2023 WebPage Regulatory News
    News

    BCBS Proposes to Revise Core Principles for Banking Supervision

    The Basel Committee on Banking Supervision (BCBS) launched a consultation on revisions to the core principles for effective banking supervision, with the comment period ending on October 06, 2023.

    August 04, 2023 WebPage Regulatory News
    News

    US Proposes Final Basel Rules, Transition Period to Start in July 2025

    The U.S. banking agencies (FDIC, FED, and OCC) recently proposed rules implementing the final Basel III reforms, also known as the Basel III Endgame.

    August 04, 2023 WebPage Regulatory News
    News

    FSB Report Outlines Next Steps for Climate Risk Roadmap

    The Financial Stability Board (FSB) recently published the second annual progress report on the July 2021 roadmap to address climate-related financial risks.

    August 04, 2023 WebPage Regulatory News
    News

    EBA Plans on Ad-hoc ESG Data Collection and Climate Scenario Exercise

    The recognition of climate change as a systemic risk to the global economy has further intensified regulatory and supervisory focus on monitoring of the environmental, social, and governance (ESG) risks.

    July 31, 2023 WebPage Regulatory News
    RESULTS 1 - 10 OF 8931