Source: ISDA, IBA, FCA, BOE, ARRC; Notes: 1) ‘Spread Adjustment’ based on 5yr median difference between LIBOR and RFR will be fixed on the day IBA, FCA or regulators announce a ‘Cessation Event’; 2) Subject to IBA consultation concluding as intended and no contrary announcements from regulators in the interim; 3) Proposed end-dates for various LIBOR settings as per the IBA consultation.
However, this raises the question of what happens to cross-currency swaps as the US dollar LIBOR continues on but other currency LIBORs switch to a fallback at end-2021. “Firms need to assess their exposures, fallbacks and triggers for each of those products, so they understand the various outcomes they face under different announcements by regulators,” said Marshall.
The decision to adhere to the ISDA Supplement and Protocol or instead use bilateral arrangements to add fallbacks to legacy swap transactions comes down to individual needs and preferences. A lot of operational and systems impacts need to be considered, with due diligence, risk assessment and contingency planning in relation to third-party data and system providers constituting essential steps prior to transitioning.
In many cases, adherence to the ISDA Fallbacks Protocol, which were developed on the basis of extensive industry consultation and feedback, provides a convenient way to prepare for transition. “There’s overwhelming support for the current fallback methodology. Coming up with an alternative that would be even better is highly unlikely, in our view,” explained Suen.
ANZ Entities Adhering to the ISDA Protocol