Linklaters publishes factsheet on IBOR Fallbacks with ISDA and Bloomberg

  • Factsheet provides market participants with an overview of Bloomberg’s methodology of calculating fallback rates following IBOR cessation
  • It also provides guidance explaining how ISDA will implement the rates in its documentation

The International Swaps & Derivatives Association (ISDA), Bloomberg and global law firm Linklaters have today launched a factsheet on IBOR Fallbacks. The guidance provides market participants with an overview of the proposed methodology to calculate adjusted risk-free reference rates (RFR) as fallbacks for key Inter Bank Offer Rates (IBORs). The factsheet also provides guidance on how ISDA will implement the rates in its forthcoming Supplement to the 2006 ISDA Definitions as well as the 2020 IBOR Fallbacks Protocol.

LIBOR is a heavily used interest rate benchmark globally, with more than $350 trillion worth of contracts referring to it. As LIBOR is expected to cease after 2021 there has been a lot of focus on remedying the fallbacks in derivative contracts. In the case of LIBOR, following either permanent cessation or the Financial Conduct Authority determining that LIBOR is no longer ‘representative’, under proposed ISDA documentation, LIBOR will fall back to the overnight rate in the relevant currency (such as SONIA or SOFR). These overnight rates have different behavioural characteristics to IBORs and so adjustments need to be made to them (including the addition of a spread). Bloomberg will be publishing these adjusted overnight rates.

Deepak Sitlani, UK Head of Derivatives and Structured Products at Linklaters said:

“The creation and documentation of robust fallbacks has been complex and we’ve been pleased to work with ISDA, Bloomberg and market participants to help deliver this solution to the market.”