Linklaters advises as ISDA publishes ISDA Benchmarks Supplement
Linklaters has advised The International Swaps and Derivatives Association, Inc. (ISDA) as it today publishes the ISDA Benchmarks Supplement.
The Benchmarks Supplement provides market participants with the ability to enhance contractual robustness for certain derivatives which reference interest rate, equity, fx and commodities benchmarks. It has been designed to help firms address the requirements of the European Benchmarks Regulation and also responds to IOSCO’s Statement on Matters to Consider in the Use of Financial Benchmarks.
The European Benchmarks Regulation regulates the provision and use of a wide variety of benchmarks across different asset classes. It requires contracts between ‘supervised entities’ and their clients which use a benchmark to reflect the actions they would take in the event that the benchmark:
- materially changes
- ceases to be provided or
- is not permitted to be used in a transaction.
IOSCO’s Statement on Matters to Consider in the Use of Financial Benchmarks recommends that users of benchmarks globally implement similar plans for cessation or material change.
By incorporating the Benchmarks Supplement into the terms of their interest rate, fx, equity and commodity derivatives, market participants will be able to contemplate those events in their contracts and specify the fallbacks which apply.
Deepak Sitlani, Derivatives partner at Linklaters, says:
“The ISDA Benchmarks Supplement is an important step in strengthening the robustness of contracts that use benchmarks referenced in various ISDA definitional booklets. Whilst the project stemmed from requirements under the EU Benchmark Regulation, it has universal application and so there is merit in using the ISDA Benchmarks Supplement for relationships that are not affected by the EU Benchmark Regulation. There is clearly a lot of work being done in the market in the context of IBOR reform and, although there is more to come on that in the derivatives space, the prospect of LIBOR disappearing was a factor in the approach taken to the ISDA Benchmarks Supplement.”
The Benchmarks Supplement was developed by an ISDA working group that includes dealers, asset managers, institutional investors, funds and end users.