In a year that began with the inauguration of a new US administration, the start of a post-Brexit relationship between the European Union and the UK and an ongoing global pandemic, the derivatives agenda might not be at the top of everyone’s watchlist. But two big developments took place in January that will have significant, ongoing impacts on derivatives markets.

The first is new fallbacks for derivatives linked to certain key interbank offered rates (IBORs), which came into effect on January 25. It means that, from now on, a fallback based on a consistent and transparent methodology will automatically apply if an IBOR permanently ceases to exist or, for LIBOR, is deemed to be non-representative of its underlying market. This introduces a vital, viable safety net for the derivatives market, and significantly reduces the risk of disruption in the event a cessation occurs before IBOR transition efforts are complete. At the point the fallbacks took effect, more than 12,000 entities globally had adhered to an ISDA protocol that allows firms to incorporate the new fallbacks into existing IBOR derivatives contracts (see pages 26-28).

The other big development is the launch of a digital ISDA Master Agreement on ISDA Create, the online documentation negotiation platform. For the first time, market participants will be able to access and negotiate the ISDA Master Agreement, a cornerstone of the derivatives market, in digital form, bringing with it increased efficiencies and resource savings for firms (see page 7). This is an important step on the path to greater standardization, digitization and automation, and other initiatives will emerge in the months ahead, including ISDA’s first natively digital definitional booklet and a user platform that will allow market participants to access ISDA documentation in electronic form.

The rest of 2021 will see an equally busy agenda, with the implementation of phase five of the initial margin requirements for non-cleared derivatives, finalization of the latest Basel measures in individual jurisdictions, and further development of environmental, social and governance (ESG) markets. We take a dive into that latter topic in this issue of IQ. Our cover story looks at the development of the ESG space and explores the important role that derivatives will play (see pages 12-17).

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