ISDA: Final IBOR Fallbacks Protocol and Supplement

Following the ISDA launch date announcement on 9 October 2020 , the IBOR Fallbacks Supplement and Protocol documents are FINAL and posted on the ISDA website. ISDA will host a number of webinars to assist with the market participants.

ISDA and Bloomberg have also produced a number of additional resources on the IBOR Fallbacks (see below).

ISDA: Final IBOR Fallbacks Documentation

ISDA: Recent Educational Materials

Bloomberg: Fallback Rate and Spread Publication

You can access these daily publication of IBOR Fallback Rates and Spread Adjustments via Bloomberg Terminal® on FBAK <GO>. The daily publication is also publicly available on the Bloomberg website on a delayed basis.

Information available on this site is provided for existing Investment Bank clients with existing LIBOR-referencing positions or products only.

Key highlights of the Practical Guide

Facts and Figures

Facts and Figures

Discounting Risk

Discounting Risk

Forecasting Risk

Forecasting Risk

Facts and Figures

  • 5 ARRs have been identified to replace the 5 LIBOR currencies
  • Each ARR is an overnight rate
  • The ARRs are backward looking rates
  • Adjustment methodology agreed to address the differences (term and credit) between LIBOR and ARRs.

Discounting Risk

  • Discounting rate and interest paid on collateral usually aligned
  • Switch in discounting rates to ARRs by CCPs is likely to be a key driver for increased adoption of ARRs across the industry
  • Any changes to the margin annex for a derivative contract should reference the new ARR to replace existing cash margin rate

Forecasting Risk

  • Updated ISDA definitions due to be published on 23rd October 2020
  • Differences in fallback methodology across different product types may impact hedge effectiveness across transactions believed to be linked
  • Evaluation of current contractual fallback provisions may lead to increased bilateral discussion

Practical considerations checklist

  • Understand what this change means for you:
    • Analyse the exposure you currently have to LIBOR and assess the potential financial impact
    • Ensure you know where you have transactions which you believe to be linked (see Forecasting Risk Section)
    • Review the fallback language in your Legal Documentation (see Forecasting Risk Section)
  • Review your readiness:
    • Evaluate whether you need to make any changes to your risk management systems
    • In addition, consider any operational processes you may need to update, for example ensuring all reference data sources are updated accordingly
    • Consider consolidating your LIBOR exposure to reduce the number of bi-lateral transitions required