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ISDA® Announces Results of Consultation on LIBOR Fallbacks for ICE Swap Rates
Practical Law Legal Update w-032-0382 (Approx. 5 pages)
ISDA® Announces Results of Consultation on LIBOR Fallbacks for ICE Swap Rates
by Practical Law Finance
| Published on 25 Jul 2021 • USA (National/Federal) |
ISDA announced the results of its June 11, 2021 consultation on the implementation of fallbacks for the USD LIBOR ICE swap rate and the GDP LIBOR ICE swap rate, as published by the ICE Benchmark Administration (IBA).
On July 23, 2021 ISDA® announced the results of its June 11, 2021 consultation (June consultation) that sought input from market participants on the implementation of fallbacks for the USD LIBOR ICE swap rate (USD LIBOR ISR) and the GDP LIBOR ICE swap rate (GDP LIBOR ISR and, together with USD LIBOR ISR, the LIBOR ISR rates), both published by the ICE Benchmark Administration (IBA). According to ISDA, the results of the June consultation indicated a significant majority of respondents agreed with the fallback provisions set out in the ISDA draft amendments (June draft amendments), which were included as links within the June consultation.
The June draft amendments will be finalized by ISDA at a later date, to be announced. The June draft amendments were designed to implement the fallbacks as suggested by the Non-Linear Task Force (NLTF) of the Working Group on Sterling Risk-Free Reference Rates (Sterling RFR WG) in the UK (NLTF paper) and a Subcommittee of the Alternative Reference Rates Committee (ARRC) in the US (ARRC paper). In order to implement the suggestions in the NLTF Paper and the ARRC Paper, ISDA proposed in the June consultation to publish amendments to the following to incorporate the fallbacks for the USD LIBOR ISR and GBP LIBOR ISR suggested in the NLTF Paper and the ARRC Paper, respectively:
- The GBP LIBOR ISR and USD LIBOR ISR Rate Options listed in Section 7 of the 2006 ISDA Definitions; and
- The relevant settlement provisions in Sections 13 and 18 of the 2006 ISDA Definitions.
ISDA noted in its announcement of the results that it will begin finalizing the June draft amendments to implement fallbacks for USD LIBOR ISR as soon as possible after a SOFR swap rate is published in a form that can be referenced in financial instruments. A report analyzing the June consultation results will be available in the future from ISDA.
ISDA originally launched the June consultation for the ISR rates following the UK Financial Conduct Authority (FCA) announcement in March 2021 on the future cessation and/or loss of representativeness of LIBOR (see Legal Updates, ISDA Launches Consultation on LIBOR Fallbacks for ICE Swap Rates and FCA statement on future cessation and loss of representativeness of LIBOR benchmarks).
ISDA confirmed in the announcement of the results that ISDA intends to publish:
- A supplement to the 2006 ISDA Definitions (ISR supplement) to help parties to legacy derivatives contracts incorporate the USD LIBOR ISR fallback provisions or the GBP LIBOR ISR fallback provisions, as applicable, into their agreements.
- Template language that counterparties may use to negotiate bilateral amendments for incorporation of amended terms in transactions entered into prior to the effective date of the ISR supplement.
Additional ISDA information relating to fallbacks for swap rates is available on its website, including a webinar recording and slide presentation on the June consultation.
For further detail on interest rate benchmark reform, see Toolkit, LIBOR Replacement Toolkit.
"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.