ISDA Summarizes Findings from Supplemental Consultation on Benchmark Fallbacks

ISDA summarized the findings from a supplemental consultation report on fallbacks in derivatives referencing EUR LIBOR and EURIBOR. The supplemental consultation was launched on December 18, 2019, in connection with ongoing efforts to amend certain floating rate options based on interbank offered rates ("IBORs") (see prior coverage).

According to ISDA, respondents to the supplemental consultation largely preferred an implementation for fallbacks in derivatives referencing EUR LIBOR and EURIBOR that used (i) a "compounded setting in arrears rate approach with a backward-shift adjustment," and (ii) a "historical median over a five-year lookback period."

ISDA found the majority of respondents would be against a transition period in the spread adjustment calculation. Most respondents stated they would be able to use the same adjustments for indices other than EUR LIBOR and EURIBOR, as market participants valued consistency across benchmarks. In addition, the majority of respondents stated that if €STR data prior to October 2, 2019 were required for the calculation of fallback rates, it would be acceptable to use pre-€STR data dating back to March 15, 2017.

The December 2019 supplemental consultation is a follow-up to consultations ISDA published in July 2018 and May 2019, which sought feedback from market participants regarding approaches to addressing certain technical issues associated with adjustments that will apply to the risk-free rate fallbacks for GBP LIBOR, CHF LIBOR, JPY LIBOR, TIBOR, Euroyen TIBOR, BBSW, LIBOR, CDOR or HIBOR.