ISDA® Publishes 2018 Benchmarks Supplement Protocol | Practical Law

ISDA® Publishes 2018 Benchmarks Supplement Protocol | Practical Law

ISDA published the 2018 Benchmarks Supplement Protocol, which enables parties to incorporate the ISDA Benchmarks Supplement into their interest rate, foreign exchange (FX), equity, and commodity derivatives transactions that reference benchmarks under existing ISDA Master Agreements.

ISDA® Publishes 2018 Benchmarks Supplement Protocol

Practical Law Legal Update w-018-0739 (Approx. 4 pages)

ISDA® Publishes 2018 Benchmarks Supplement Protocol

by Practical Law Finance
Published on 12 Dec 2018 • USA (National/Federal)
ISDA published the 2018 Benchmarks Supplement Protocol, which enables parties to incorporate the ISDA Benchmarks Supplement into their interest rate, foreign exchange (FX), equity, and commodity derivatives transactions that reference benchmarks under existing ISDA Master Agreements.
On December 10, 2018, ISDA® published the 2018 Benchmarks Supplement Protocol (the protocol), which enables parties to incorporate the ISDA Benchmarks Supplement into their interest rate, foreign exchange (FX), equity, and commodity derivatives transactions that reference benchmarks under existing ISDA Master Agreements.
The ISDA Benchmarks Supplement, which was published in September 2018, enables parties to derivatives transactions that reference benchmarks to comply with the EU Benchmarks Regulation by supplementing definitions used in their transaction documents to provide for the actions parties will take if a referenced benchmark is materially changed or ceases to be provided (see Legal Update, ISDA® Publishes Benchmarks Supplement).
The protocol:
  • Allows parties to incorporate the Benchmarks Supplement into some or all of their transactions, by either adhering on a counterparty-by-counterparty approach or on an all-counterparties basis.
  • Allows parties to choose whether the Benchmarks Supplement applies only to new transactions or if it applies to legacy transactions as well.
  • Includes a bilateral delivery requirement, requiring each party that submits an adherence letter to also deliver a completed questionnaire to the relevant counterparty in order for the amendments to be effective.
ISDA has been leading the work on the implementation of new benchmark fallbacks following a call by the Financial Stability Board (FSB) in July 2014 to reform interest rate benchmarks in the event the main IBORs, such as LIBOR, are permanently discontinued, in order to avoid market disruption (see Legal Update, FSB report on reforming major interest rate benchmarks).
Incorporating the Benchmarks Supplement into the terms of relevant transactions ensures that the circumstances under which a referenced benchmark is materially changed or ceases to be provided for is taken into account. Parties can then specify the fallback arrangements that would apply in these situations.
The text of the protocol, link for adherence, answers to frequently asked questions, and links to ISDA webinars on the Benchmarks Supplement are all available on the protocols section of ISDA's website.
The protocol is open to adherence to ISDA members and non-members from December 10, 2018.
ISDA also issued a press release on the protocol.
"ISDA" is a registered trademark of the International Swaps and Derivatives Association, Inc. (ISDA). ISDA is not a sponsor of Practical Law and had no part in the development of this Update.