The US Department of Justice (DOJ), Antitrust Division, issued a business review letter in response to a request by ISDA® seeking antitrust approval for its upcoming supplement (supplement) to the 2006 ISDA Definitions covering interbank offered rate (IBOR) fallbacks, as well as the related forthcoming IBOR fallbacks protocol (protocol) that will allow parties to amend their derivatives agreements to incorporate the supplement (see Legal Update, ISDA Announces IBOR Fallbacks Supplement to 2006 ISDA Definitions and Related Protocol Will Launch in Late January 2021).

The 2006 ISDA Definitions (2006 Definitions) govern interest rate swaps, cross-currency swaps, and certain other types of swap transactions.

According to the letter, ISDA's proposed fallback rates for IBORs could result in one group of derivatives users benefiting at the expense of another. However, DOJ states in the letter that, based on ISDA's representations and the DOJ investigation, in its view, anticompetitive effects arising from the supplement and protocol do not appear to be likely. The letter notes that if a user of ISDA's model documents does not wish to use the proposed fallback rates, nothing in the supplement or protocol prevents the user from entering into a derivatives contract (or amending one currently in place) that uses an alternative rate, including rates not included in the 2006 Definitions.

The letter notes further that choosing a particular rate as the basis for an IBOR's fallback rate could have the potential for anticompetitive effects by preventing other rates from being used. Here, however, DOJ states that it has no reason to believe that anticompetitive effects are likely to arise from ISDA' s proposal to use the risk-free rates (RFRs) it has chosen to use as the starting point for its proposed fallback rates because the RFRs were chosen by public-private working groups tasked by the FSB to identify suitable RFRs to replace their corresponding IBORs. DOJ also opines in the letter that ISDA's proposal has the potential to offer substantial benefits to the financial services industry. Accordingly, DOJ has no present intention to challenge ISDA' s proposal to amend its standardized documentation.

ISDA had been waiting for DOJ approval to proceed with the supplement and protocol as scheduled in January 2021.