The ISDA 2018 Benchmarks Supplement Protocol (Protocol) was created to allow market participants to incorporate the ISDA Benchmarks Supplement into relevant transactions under existing master agreements quickly and efficiently.
The ISDA Benchmarks Supplement was published in September 2018 and was primarily developed in response to requirements under the EU Benchmarks Regulation for certain contracts to reflect the actions parties will take if a referenced benchmark is materially changed or ceases to be provided. By incorporating the ISDA Benchmarks Supplement into the terms of relevant transactions, market participants will be able to ensure these events are taken into account in their contracts and specify the fallback arrangements that would apply.
The ISDA Benchmarks Supplement covers a much broader range of benchmarks than ISDA’s work to implement robust fallbacks to specific rates for certain interbank offered rates (IBORs), which is being undertaken at the request of the Financial Stability Board’s Official Sector Steering Group. While two separate initiatives, the ISDA Benchmarks Supplement complements the IBOR fallback work, as it enables firms to agree interim fallback arrangements should an IBOR cease to exist before the IBOR fallbacks are implemented. The IBOR fallbacks will take precedence for relevant IBORs once implemented following an index cessation event.
The ISDA Benchmarks Supplement also sets out triggers and fallbacks if a benchmark does not qualify for use in a relevant jurisdiction or qualification is subsequently suspended or withdrawn.
The Protocol supports both a counterparty-by-counterparty and an all-counterparties approach, meaning parties are not obliged to incorporate the ISDA Benchmarks Supplement into transactions with all of their counterparties that adhere to the protocol unless they wish to do so.
Entities that adhere to the protocol are also able to choose whether the ISDA Benchmarks Supplement should only apply to new transactions under existing Master Agreements or whether they also want it to apply to existing transactions. Until both parties elect for it to apply to their legacy transactions, the protocol will only apply to new transactions.
Unlike some ISDA Protocols where amendments are effected solely by delivery of an adherence letter by each party, the 2018 Benchmarks Supplement Protocol requires that adherents must also exchange completed Questionnaires for amendments to be effective between them.
Please refer to the two sets of “Frequently Asked Questions” and other educational materials (including links to webinars) set out on this page for more information on the background and substance of the Protocol and the ISDA Benchmarks Supplement.
Adherence to the Protocol is open to ISDA members and non-members. Parties will pay a one-time fee of $500 to ISDA for each adherence to the Protocol. There will not be a cut-off date to the Protocol. ISDA does, however, reserve the right to designate a cut-off date by giving 30 days’ notice on this webpage.
ISDA 2018 Benchmarks Supplement Protocol (Protocol) FAQs
ISDA has prepared this list of frequently asked questions to assist in your consideration of the Protocol. Capitalized terms used in this FAQs have the meanings given to them in the Protocol or, absent any meaning given to them in the Protocol, have the meanings given to them herein.
THESE FREQUENTLY ASKED QUESTIONS DO NOT PURPORT TO BE AND SHOULD NOT BE CONSIDERED A GUIDE TO OR AN EXPLANATION OF ALL RELEVANT ISSUES OR CONSIDERATIONS IN CONNECTION WITH THE PROTOCOL. PARTIES SHOULD CONSULT WITH THEIR LEGAL ADVISERS AND ANY OTHER ADVISER THEY DEEM APPROPRIATE PRIOR TO USING OR ADHERING TO THE PROTOCOL. ISDA ASSUMES NO RESPONSIBILITY FOR ANY USE TO WHICH ANY OF ITS DOCUMENTATION OR OTHER DOCUMENTATION MAY BE PUT.
The Protocol was created to allow market participants to include the terms of the ISDA Benchmarks Supplement in covered confirmations which incorporate, or which are entered into under a master agreement which incorporates, one or more of the following ISDA definitional booklets:
- 2006 ISDA Definitions
- 2002 ISDA Equity Derivatives Definitions
- 1998 FX and Currency Option Definitions
- 2005 ISDA Commodity Definitions.
Further information on the ISDA Benchmarks Supplement can be found in the ISDA Benchmarks Supplement FAQs and webinars provided on the ISDA website. In particular, these resources provide information on how the ISDA Benchmarks Supplement interacts with the separate work that ISDA is doing at the request of the Financial Stability Board’s Official Sector Steering Group to introduce more robust fallbacks for certain interbank offered rates or ‘IBORs’.
List of Questions
The next section sets out questions and answers that are designed to explain the basic operation and application of the Protocol. They cover:
- Who can adhere to the Protocol?
A. What kinds of entities can adhere to the Protocol?
B. Can entities that are not ISDA members adhere to the Protocol?
- What does the Protocol do?
A. What are Protocol Covered Confirmations, Matched PCCs and Governing Master Agreements under the Protocol?
B. Will the Protocol apply to all of my Protocol Covered Confirmations if I adhere or just certain of them?
C. Can I specify that only Protocol Covered Confirmations under certain Governing Master Agreements are subject to the Protocol?
D. Can I specify that only certain annexes of the ISDA Benchmarks Supplement apply under the Protocol?
E. How do I elect for the Protocol to apply to Legacy Protocol Covered Confirmations? Can I change my election?
F. Does a Protocol Participant have to amend its Protocol Covered Confirmations with all other Protocol Participants or can it elect to apply the Protocol in respect of only certain Protocol Participants?
G. Does the Protocol amend Protocol Covered Confirmations with more than two counterparties?
H. Can I send the same Questionnaire to all of the Protocol Participants I want to apply the Protocol with?
- When does the Protocol become effective?
- How do I adhere to and implement the Protocol?
A. Is there a closing date for adherence to the Protocol? Is there a date beyond which Protocol Participants cannot continue to submit Questionnaires?
B. How do I submit an Adherence Letter, what is the Questionnaire and how do I send a Questionnaire?
C. Is adherence public?
D. What is a conformed copy?
E. Who is an authorized signatory?
F. Can I change the text of the Adherence Letter or Questionnaire?
G. Are there any costs to adhere to the Protocol?
H. Can I revoke my adherence to the Protocol?
- How do investment/asset managers or other agents adhere and exchange questionnaires on behalf of clients?
A. How do I adhere and send Questionnaires as principal and on behalf of my clients?
B. How do I adhere and send a Questionnaire on behalf of all clients I represent?
C. How do I adhere and send Questionnaires on behalf of some, but not all, clients I represent and how do I make different elections for different clients I represent?
D. What if I want to adhere and send Questionnaires on behalf of only one client?
E. What happens if I add a client to an umbrella master agreement after adhering to the Protocol and exchanging Questionnaires?
F. What are the advantages and disadvantages of using Option 1 (PCC Agent All Principal Questionnaire) or Option 2 (PCC Agent Principal Identified Questionnaire) when sending Questionnaires on behalf of PCC Principals?
- How do I adhere and exchange Questionnaires with a PCC Agent that is acting on behalf of one or more PCC Principles?
You can download the full FAQ here.