Bloomberg Index Services Limited (BISL) has begun calculating and publishing fallbacks that will help facilitate the withdrawal of certain key interbank offered rates ahead of the LIBOR transition set for end of next year.
Last November, the International Swaps and Derivatives Association (ISDA) published a report summarising market feedback on the final parameters of adjustments that will apply to derivatives fallbacks for certain IBORs
The trade group is implementing adjusted versions of the RFRs (risk-free rates) to serve as IBOR fallbacks, to account for the differences between RFRs and IBORs. RFRs are overnight rates without a credit component, whereas IBORs have term structures and credit sensitive elements.
In July 2019, Bloomberg was selected to calculate and publish the adjusted RFRs, following an in-depth selection process. BISL is authorised by the Financial Conduct Authority as a regulated UK benchmark administrator and has conducted index administration since 2014.
The calculations include the adjusted RFR (compounded in arrears), the spread adjustment and the ‘all in’ IBOR fallback rates across various tenors for the BBSW (Australia), CDOR (Canada), Swiss franc LIBOR, EURIBOR, euro LIBOR, sterling LIBOR, HIBOR, euroyen TIBOR, yen LIBOR, TIBOR and US dollar LIBOR.
Industry participants will be able to access the information through various distribution channels, including the Bloomberg Terminal, the desktop API, Bloomberg Data License and authorised redistributors.
“The introduction of robust new fallbacks for derivatives contracts will significantly reduce the systemic risk posed by a permanent cessation of a key IBOR,” said ISDA chief Scott O’Malia. “Publishing indicative spread adjustments and all-in fallback rates now will help firms as they prepare to implement the new fallback methodology.”
Umesh Gajria, Global Head of Index Linked Products at Bloomberg, adds, “We are pleased to partner with ISDA to support the markets through the calculation and distribution of IBOR fallbacks. This is an important move forward as we continue to help our clients with their IBOR transition efforts.”
ISDA will publish the amendments to the 2006 ISDA Definitions and a related protocol in late July 2020, subject to receiving a positive business review letter from the US Department of Justice as well reassurances from other relevant competition law authorities.
The contractual changes to embed the fallbacks are due to take effect in ISDA’s derivatives documentation in November, or four months after publication.