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These exceptional circumstances have posed unique questions and issues, which the industry and ISDA have been responding to.
Recognising that financial institutions are now entirely focused on business continuity and managing risk, regulators have been quick to extend upcoming deadlines and provide temporary relief on existing obligations. Various measures have also been introduced to allow banks to eat into capital and liquidity buffers so they can continue to support the economy. These steps have been important and have enabled firms to better allocate scarce resources, but challenges remain in a variety of areas. ISDA has been busy identifying these problematic issues and proposing solutions to regulators.
Some of the issues have been operational in nature. For example, the closure of offices globally in response to the coronavirus outbreak has highlighted potential difficulties in signing and delivering paper documents and notices, and has prompted greater interest in digital documentation, e-signatures and the enforceability of electronic contracts in various jurisdictions. And, in an environment where some national authorities opted to close certain markets and infrastructures in response to severe volatility, there has also been a need for industry guidance to provide clarification and help ensure the orderly valuation and settlement of derivatives positions.
This edition of IQ examines some of the issues raised by the coronavirus crisis, and looks at the measures taken by ISDA and the industry to help ensure markets continue to function efficiently. We also look at the regulatory response, and consider what might come next.
It’s not all about coronavirus, though. Progress continues to be made on efforts to adopt alternative risk-free rates ahead of the end of 2021, when the UK Financial Conduct Authority has said it will no longer compel or persuade banks to make LIBOR submissions. Last month, ISDA published preliminary results from its latest consultation on fallbacks, which indicate strong support for including both pre-cessation and permanent cessation fallbacks as standard language in the 2006 ISDA Definitions and in a single protocol. In this issue of IQ, we ask a range of market participants for their views on benchmark reform, including the importance of robust fallbacks.
Click on the PDF link below to read the full issue.
IQ ISDA Quarterly May 2020(pdf)