Bloomberg Begins Publishing IBOR Fallback Rates for Derivatives

Source: Regulation Asia Editors, Regulation Asia 2020-07-22

The calculations being published include the adjusted RFRs, the spread adjustment and the ‘all in’ IBOR fallback rates for certain key IBORs across various tenors.

Bloomberg Index Services Limited (BISL) has begun calculating and publishing fallbacks that ISDA (International Swaps and Derivatives Association) intends to implement for certain key IBORs.

Last November, ISDA published a report summarising market feedback on the final parameters of adjustments that will apply to derivatives fallbacks for certain IBORs, ahead of the discontinuation of LIBOR at the end of 2021. Based on the feedback, ISDA said it would amend its standard interest rate derivatives definitions to incorporate fallbacks for new IBOR trades.

ISDA is implementing adjusted versions of the RFRs (risk-free rates) to serve as IBOR fallbacks, to account for the differences between RFRs and IBORs. RFRs are overnight rates without a credit component, whereas IBORs have term structures and credit sensitive elements.

In July 2019, Bloomberg was selected to calculate and publish the adjusted RFRs, following an in-depth selection process. BISL is authorised by the FCA (Financial Conduct Authority) as a regulated UK benchmark administrator and has conducted index administration since 2014.

Calculations published by BISL include the adjusted RFR (compounded in arrears), the spread adjustment and the ‘all in’ IBOR fallback rates across various tenors for the BBSW (Australia), CDOR (Canada), Swiss franc LIBOR, EURIBOR, euro LIBOR, sterling LIBOR, HIBOR, euroyen TIBOR, yen LIBOR, TIBOR and US dollar LIBOR.

Bloomberg will make the adjusted RFRs, spread adjustments and all-in fallback rates available to industry participants through various distribution channels, including the Bloomberg Terminal, the desktop API, Bloomberg Data License and authorised redistributors.

“The introduction of robust new fallbacks for derivatives contracts will significantly reduce the systemic risk posed by a permanent cessation of a key IBOR,” said ISDA chief Scott O’Malia. “Publishing indicative spread adjustments and all-in fallback rates now will help firms as they prepare to implement the new fallback methodology.”

ISDA will publish the amendments to the 2006 ISDA Definitions and a related protocol in late July 2020, subject to receiving a positive business review letter from the US Department of Justice and similar comfort from other relevant competition law authorities.

The contractual changes to embed the fallbacks are due to take effect in ISDA’s derivatives documentation in November, or four months after publication.

Bloomberg

LIBOR

Bloomberg Begins Publishing IBOR Fallback Rates for Derivatives

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