ISDA Chief Executive Officer Scott O'Malia offers informal comments on important OTC derivatives issues in derivatiViews, reflecting ISDA's long-held commitment to making the market safer and more efficient.

When it comes to benchmark reform, our message is simple: get engaged and mobilize your organization. The work to adopt risk-free rates (RFRs) as an alternative to interbank offered rates (IBORs) is progressing quickly. Time is short, and it’s important no one gets left behind.

ISDA is working to raise awareness of the issue, facilitate adoption of the alternative RFRs and help the industry address the risk that an IBOR may be permanently discontinued. Last month, ISDA and other trade associations published a benchmark transition roadmap that aggregates and summarizes the work conducted so far in order to provide a central resource on the topic. We’ve also launched a global survey of buy- and sell-side firms and infrastructures to gauge opinion on the issues they face with any transition to alternative RFRs and on possible consensus solutions.

ISDA is also working on a separate initiative at the request of the Financial Stability Board’s Official Sector Steering Group to identify robust fallbacks for derivatives contracts that reference certain key IBORs. Once finalized and implemented, those fallbacks will apply if a relevant IBOR is permanently discontinued.

These projects are meant to complement the work being done by various public-/private-sector RFR working groups, and to support industry benchmark reform efforts. It coincides with initiatives by the public-/private-sector working groups to promote adoption of the alternative RFRs, address the risks of legacy IBOR contracts and expand their outreach to include participants in the bond, loan and other cash markets. We strongly encourage market participants to engage with these groups, to read the benchmark roadmap and to participate in our survey.

The effort to reduce the reliance on certain key IBORs and to adopt RFRs in their place has become a major priority for the derivatives industry and for policy-makers. Driving this work is concern about the robustness and viability of certain IBORs amid a lack of underlying transactions in the unsecured bank funding market. The revelation that the UK Financial Conduct Authority will not compel or persuade banks to make LIBOR submissions from the end of 2021 has further electrified the issue, and set a deadline to get alternatives up and running.

With over $370 trillion in total notional exposure to the IBORs, missing this deadline is not an option.

In tackling this issue, it’s critical we ensure an orderly transition to RFRs. The process of identifying and addressing possible transition challenges is already in train at the various public-/private-sector working groups, and our global survey will help feed into those efforts.

The IBORs play a critical role across the financial industry – from derivatives to mortgages. We all have an interest in making sure the transition occurs smoothly. That’s why everyone needs to participate, share ideas and develop solutions that work for all – the efficient functioning of our market could depend upon it.

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