International Swaps and Derivatives Association Announces Results of LIBOR Fallbacks Consultation and New Pre-Cessation Fallbacks Consultation

The International Swaps and Derivatives Association has published the results of its consultation on fallbacks to be introduced into standard ISDA documentation based on alternative risk-free rates for EUR LIBOR and EURIBOR. The fallbacks would apply if the relevant IBOR were to be permanently discontinued. Respondents to the consultation agreed with ISDA’s proposed approach of adopting a compounded setting in arrears rate with a backward-shift adjustment and historical median over a five-year lookback period approach to address technical issues associated with the fallback rates. ISDA therefore intends to develop fallback provisions on this basis. It will publish an anonymized summary of the consultation feedback in the coming weeks.

ISDA has also published a consultation on whether to include a pre-cessation trigger in its permanent cessation fallback provisions. Pre-cessation triggers would cause LIBOR-based derivative contracts to fall back to an alternative reference rate in the event that the U.K. Financial Conduct Authority deemed LIBOR to no longer be representative. ISDA seeks views from participants as to whether it should include provisions in its standard documentation specifying that rate options for LIBOR in USD, GBP, CHF, JPY and EUR all contain fallbacks that would apply upon the earlier of (i) a permanent cessation trigger; and (ii) a ‘non-representativeness’ trigger. Responses to the consultation should be submitted by March 25, 2020.

View ISDA's statement on the results of its LIBOR fallbacks consultation.

View details of ISDA's consultation on LIBOR fallbacks.

View ISDA's consultation paper on pre-cessation fallbacks.

View details of ISDA's announcement on its pre-cessation fallbacks consultation. 
 
You may like to see our client note on ISDA's consultation on pre-cessation fallback provisions.

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