ISDA Publishes Brattle-Prepared Summary Report on IBOR Benchmark Fallbacks

To prepare for a permanent discontinuation of certain key interbank offered rates (IBORs), the International Swaps and Derivatives Association (ISDA) is in the process of amending its standard documentation to implement fallback rates for derivatives.

ISDA released a report prepared by The Brattle Group related to pre-cessation issues: Anonymized Narrative Summary of Responses to the ISDA Pre-Cessation Consultation (October 21, 2019).

In the report, Brattle consultants summarized feedback from market participants on the inclusion of contractual, pre-cessation fallback triggers. The feedback indicates that a significant majority of market participants would not want to continue referencing a covered IBOR in existing or new derivatives contracts following a statement by a supervisory authority that an IBOR was no longer representative of an underlying market. Market participants broadly sought a uniform transition to fallback rates across products and currencies, though their opinions differed slightly on the process.

Earlier in ISDA’s process, Brattle’s team compiled two related reports:

• Summary of Responses to the ISDA Supplemental Consultation on Spread and Term Adjustments (September 18, 2019)
• Anonymized Narrative Summary of Responses to the ISDA Consultation on Term Fixings and Spread Adjustment Methodologies (December 20, 2018)

In each of these reports, Brattle consultants analyzed and classified the responses by market participants, including an assessment of geographic diversity and industry representation. Our team confirmed areas of consensus and ensured the accuracy of ISDA’s counsel’s statistical representations and summary of feedback from market participants. Brattle is continuing to work with ISDA on its planned implementation of fallback reference rates to its standard documentation for derivatives.

The reports were supported by Brattle Principals Ioannis Gkatzimas, Shaun Ledgerwood, and Torben Voetmann; Senior Consultant Hollie Mason; and Associate Nguyet Nguyen.