Key Changes in the 2021 ISDA Interest Rate Derivatives Definitions

On June 11, 2021, ISDA published the 2021 ISDA Interest Rate Derivatives Definitions, the latest in a series of definitional booklets that have provided the framework for documenting over-the-counter interest rate derivatives transactions since 1985.

Historically, the definitions have been periodically updated via the publication of supplements to keep pace with market developments – for example, when new interest rate benchmarks (or floating rates) used to determine floating amounts have been required. When more wide-ranging changes are needed, the definitions booklet itself has been republished in its entirety, consolidating the amendments made to the previous booklet and incorporating changes to reflect market conventions. The previous time the interest rate definitions were republished was in January 2007, when the 2006 ISDA Definitions were released.

Significant changes have occurred in derivatives markets since then, including the transition from paper to electronic confirmations, the rollout of regulatory reforms in the wake of the global financial crisis and the increased use of collateralization and central clearing.

As a result, over 75 supplements have been added to the 2006 Definitions, which has led to them becoming unwieldly and difficult to read. To fully understand all the terms (and therefore the risks) that apply to an interest rate swap traded under the 2006 Definitions, it is necessary to read though the original 2006 booklet together with all the supplements published since 2006 in case any terms or provisions of the original 2006 booklet relevant to that trade have been changed by one or more of the subsequent supplements.

Almost 15 years on from publication of the 2006 Definitions, a major update and consolidation of the ISDA Definitions was long overdue.

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