24 February 2020

ISDA publishes results of consultation on fallbacks for derivatives referencing Euro LIBOR and EURIBOR

ISDA published a statement summarizing responses to a supplemental consultation on the spread and term adjustments that would apply to fallbacks for derivatives referencing euro LIBOR and EURIBOR.

ISDA received feedback from 57 entities to the Supplemental Consultation on Spread and Term Adjustments, including Final Parameters thereof, for Fallbacks in Derivatives Referencing EUR LIBOR and EURIBOR, as well as other less widely used IBORs. A variety of market participants from a variety of jurisdictions and industry affiliations submitted responses.

The overwhelming majority of respondents agreed with an implementation based on the ‘compounded setting in arrears rate approach with a backward-shift adjustment’ and a spread adjustment based on a ‘historical median over a five-year lookback period for fallbacks in derivatives referencing EUR LIBOR and EURIBOR and other less widely used IBORs. Respondents cited both support for the substance of these approaches and a strong desire to apply a consistent approach across all benchmarks covered by this supplemental consultation and the prior consultations. Based on the foregoing ISDA expects to proceed with developing fallbacks for inclusion in its standard definitions based on the compounded setting in arrears rate with a backward shift and thef ive-year historical median approach to the spread adjustment for EUR LIBOR and EURIBOR.

The supplemental consultation, which was launched in December 2019, also covers technical issues related to the adjustment methodology, and seeks feedback on whether the adjustments would be appropriate for lesser-used interbank offered rates (IBORs) if ISDA implements fallbacks for those benchmarks in the future. It follows three earlier consultations – two setting out options for the adjustments that will apply to the relevant risk-free rates if fallbacks are triggered for derivatives referencing nine IBORs, and one on the final parameters for the adjustment methodology.

ISDA expects to publish additional information – including anonymized and aggregated responses to the supplemental consultation – in the coming weeks.

Full statement

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