Interbank Offered Rates (IBORs), a series of interest rate benchmarks, are undergoing a period of change as regulators and industry groups have recommended that firms transition away from the London Interbank Offered Rate (LIBOR) and other IBORs and prepare to replace them with alternative, overnight Risk Free Rates (RFRs). These RFRs, including SOFR (USD), €STR (EUR) and SONIA (GBP), are typically administered and published by major central banks worldwide. Transitioning to the RFRs will be a demanding and complex process for the industry as RFRs are structurally different from IBORs. They are overnight rates and exhibit different liquidity characteristics and supply/demand issues than IBORs.

To address the risk that one or more IBORs are discontinued while market participants continue to have exposure to that rate, counterparties are encouraged to agree to contractual fallback provisions that would provide for adjusted versions of the RFRs as replacement rates.

Due to the fundamental differences in the nature of IBORs and the RFRs, key adjustments are necessary if fallbacks to RFRs are to take effect in contracts that were originally negotiated to reference the IBORs. ISDA ran public consultations to finalize the adjustment methodologies and subsequently issued a tender invitation for a vendor to perform and distribute these necessary adjustments.

These consultations yielded industry consensus, and more information about them can be found below.

2020 Pre-Cessation Fallback Consultation

IBOR Fallback Rate Adjustments FAQs – Updated February 2020

Results – December 2019 Benchmark Fallbacks Supplemental Consultation

December 2019 Benchmark Fallbacks Supplemental Consultation

Results – September 2019 Consultation on Final Parameters

September 2019 Consultation on Final Parameters

Results – May 2019 Supplemental Consultation

Results – May 2019 Consultation on Pre-Cessation Issues

May 2019 Benchmark Fallbacks Consultations

Results – 2018 Benchmark Fallbacks Consultation

2018 Benchmark Fallbacks Consultation

 

Tentative Timing for Fallback Implementation
New consultation on combination of permanent cessation fallbacks and pre-cessation fallbacks Late February 2020
Deadline for consultation responses Late March 2020
Publication of consultation results and announcement of next steps for implementing permanent cessation and pre-cessation fallbacks Late April 2020-Early May 2020
Publication of Bloomberg indicative fallback rates First half of 2020
Publication of amendments to the 2006 ISDA Definitions and related protocol TBD
Effectiveness of amendments to the 2006 ISDA Definitions and related protocol 3-4 months after publication

 

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