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LIBOR and other IBORs are coming to an end


ISDA Protocol: Introduction


Interbank Offered Rates (IBORs), which include the London Interbank Offered Rates (LIBOR) are expected to be discontinued after 31 December 2021 and replaced with certain Alternative Reference Rates (ARRs), except for certain USD LIBOR tenors, which are expected to be discontinued after 30 June 2023. LIBOR and IBOR rates have historically be used as the reference rate in respect of a significant proportion of derivatives transactions, including, potentially, a material proportion of your derivative transactions.

The International Swaps and Derivatives Association (ISDA) has published the ISDA 2020 IBOR Fallbacks Protocol (the “ISDA Protocol”) in January 2021 to facilitate the transition from IBORs to ARRs in respect of legacy derivative transactions. In addition, ISDA has published a supplement to the 2006 ISDA Definitions (the “Supplement”) to facilitate the transition of new IBOR based derivative transactions to ARRs.

ADCB adhered to the ISDA Protocol in January 2021 and encourages all of its clients to inform themselves about the ISDA Protocol and the Supplement and consider whether it would be appropriate for them to adhere to the ISDA Protocol. ADCB has prepared these materials to assist your decision making process. These materials have been drawn from public sources and links have been provided to enable you to access the source information.

As part of the global transition from IBORs to ARRs, many leading regulators and industry groups2345 are encouraging market participants to adhere to the ISDA Protocol.

What is the ISDA Protocol?

The ISDA Protocol was published in order to efficiently amend the large number of existing derivative contracts that reference IBORs that are expected to be discontinued. The effect of the ISDA Protocol is to include in existing derivative contracts a new set of fallback provisions. The fallback provisions are a framework enabling derivatives contracts to transition away from IBORs to the new industry-agreed ARRs (plus spread adjustments) as and when such IBORs are discontinued. All the amendments and contractual framework discussed in this communication have been developed at a global industry level coordinated by ISDA. ADCB has had no involvement or input in such amendments or contractual framework.

The ISDA Protocol enables market participants to automatically incorporate a robust risk-free rate-based fallback into their legacy non-cleared derivatives trades with other counterparties that choose to adhere to the ISDA Protocol (rather than going through a manual process of amending each in-scope agreement). The ISDA Protocol is currently open for adherence and became effective on 25 January 2021. (Source: ISDA)

The ISDA Protocol applies where: (i) the relevant document (master agreement, credit support document or trade confirmation) incorporates the 2006 ISDA Definitions (or one of the equivalent earlier legacy ISDA definitions booklets) and (ii) the relevant document references a relevant IBOR. (Source: ISDA)

In addition, some non-ISDA documents will be within the scope of the Protocol, but only if those documents are listed in the Protocol as “Additional Master Agreements” or “Additional Credit Support Documents”. The ISDA Protocol is available here for your reference. New derivatives transactions entered into on or after 25 January 2021 that incorporate the 2006 ISDA Definitions will automatically contain the fallbacks set out in the ISDA Protocol.

What rates are covered by the ISDA Protocol?

The ISDA protocol covers a number of IBORs that have been published for various currencies. The following table sets out the main IBORs that clients of ADCB may be familiar with, as well as their corresponding ARR:

IBORs and corresponding ARRs

Where can I find additional information on the ISDA Protocol?

ISDA has published a dedicated page for the 2020 IBOR Fallbacks Protocol (including answers to frequently asked questions), which can be found here. Additional information on other updates from ISDA in respect of the broader transition away from IBORs to ARRs can be found here.

Adherence to the ISDA Protocol

How do I adhere to the ISDA Protocol?

Instructions on how to adhere to the ISDA Protocol can be found here.

Can I see who has adhered to the ISDA Protocol?

Yes. The list of Adhering Parties can be found here.

Is there a cost to adhere to the ISDA Protocol?

Each party adhering to the ISDA Protocol after 25 January 2021 needs to pay USD 500.

ADCB’s adherence to the ISDA Protocol

Has ADCB adhered to the ISDA Protocol?

Yes. ADCB adhered to the ISDA Protocol in January 2021.

For further information on the ISDA Protocol and Fallbacks, please click here.