On May 14, 2020, ISDA® published a report summarizing the responses to its consultation on the implementation of pre-cessation fallbacks for derivatives contracts that reference USD LIBOR (see Legal Update, ISDA Publishes Second Consultation on IBOR Pre-Cessation Fallbacks for Derivatives).

The report concludes that 91% of respondents answered yes to the only question posed in the 2020 consultation, which asked market participants if the 2006 ISDA Definitions (2006 Definitions), which govern most over-the-counter (OTC) interest rate swap contracts, should be amended to include fallbacks that would apply to all covered derivatives referencing LIBOR following either:

Many respondents that answered yes, and even some that answered no, expressed a need for ISDA and other relevant agencies to ensure consistency across asset classes, as well as between cleared and non-cleared derivatives markets. Additionally, respondents expressed a preference to not allow for optionality for firms to implement pre-cessation triggers across non-cleared markets on a going-forward basis in the upcoming Supplement to the 2006 ISDA Definitions that will amend the 2006 Definitions to account for benchmark fallbacks. Respondents indicated that they believe providing market participants with the option to implement pre-cessation triggers would result in implementation challenges and fragmented markets.

The report confirms the preliminary findings of the April consultation, which indicated a majority preference for:

ISDA expects to publish the protocol and amendments to the 2006 ISDA Definitions to incorporate the fallbacks for new trades in July 2020, with both coming into effect before the end of 2020.