ISDA 2020 IBOR Fallbacks Protocol becomes effective

In July 2016, The Financial Stability Board first asked The International Swaps and Derivatives Association, Inc. (ISDA) to improve the fallbacks in interest rate derivatives. Today, after four and a half years of hard work, ISDA has published the IBOR Fallbacks Supplement to the 2006 ISDA Definitions and the ISDA 2020 IBOR Fallbacks Protocol has become effective.

This means that both new derivative contracts as well as existing contracts between parties that have adhered to the Protocol will include robust fallbacks for a number of key inter-bank offered rates, notably LIBOR.

Over 12,000 parties have already adhered to the Protocol, which means that the Protocol has been successful to help market participants update a significant volume of the world’s interest rate swap market. These documents have been welcomed by regulators globally. We are pleased to see a significant number of market participants adopt the terms of the Protocol. Adopting strong fallbacks in LIBOR linked contracts is necessary to mitigate systemic risk in the derivatives markets.

Deepak Sitlani, Derivatives partner at Linklaters, says:

“The high number of adherents to the ISDA 2020 IBOR Fallbacks Protocol shows that it has been successful in mitigating the impact of IBOR cessation on derivative contracts. We are delighted to have worked with ISDA, market participants and regulators to help bring this important mechanism to the market”.

The IBOR Protocol was developed by an ISDA working group that includes dealers, asset managers, institutional investors, funds and end users.