ISDA IBOR Fallback Update 

CFTC MRAC

December 2019
ISDA IBOR Fallbacks: Implementation in ISDA Documentation

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• Amendments to relevant floating rate options in Section 7.1 of the 2006 ISDA Definitions

• Amended and restated floating rate options will generally include:

• The existing price source information;

• A statement identifying the objective triggers for a ‘permanent cessation’ that would activate the selected fallbacks; and

• A description of the fallback that would apply upon the occurrence of that trigger, which will be the adjusted RFR plus the 

spread adjustment

• Floating rate options in the 2006 ISDA Definitions are generally incorporated by reference into confirmations for 

uncleared interest rate derivatives and the rulebooks of CCPs that clear interest rate derivatives

• Amendments will be implemented via a ‘Supplement’ to the 2006 ISDA Definitions (currently about 60 supplements)

• Upon publication of the Supplement amending the relevant floating rate option, all new derivative transactions that 

incorporate the 2006 ISDA Definitions will include the fallbacks (counterparties will not have to take any additional steps)

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ISDA IBOR Fallbacks: Implementation in ISDA Documentation

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• ISDA will also publish a Protocol to facilitate inclusion of the amended definitions (i.e. the definitions with fallbacks) into 

existing derivative transactions that were entered into prior to publication of the relevant Supplement 

• Will apply to existing derivatives transactions that incorporate the 2006 ISDA Definitions, the 2000 ISDA Definitions or the 1991 ISDA 

Definitions

• Adherents to the Protocol will agree that derivatives transactions that they have entered into with other adherents prior to 

publication of the relevant Supplement will be based on the relevant amended floating rate options in the 2006 ISDA 

Definitions, notwithstanding of the dates of the transactions

• Existing derivatives transactions entered into prior to the date of the relevant Supplement amending the 2006 ISDA 

Definitions between counterparties that do not both adhere to the protocol, or otherwise (e.g. bilaterally) agree to include 

the amended definitions in their transactions, will not include the fallbacks

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Term and Spread Adjustments

• The Compounded Setting in Arrears Rate is the relevant RFR observed over the relevant IBOR tenor and 

compounded daily during that period

• Backward shift of approximately 2 banking days will apply

• The Five-Year Historical Median Approach to the spread adjustment 

• Based on the median spread between the IBOR in the relevant tenor and the adjusted RFR over each corresponding tenor (so 

the spread will differ across different IBOR tenors).

• Calculated over the five-year period prior to the relevant announcement or publication triggering the fallback provisions (but will 

not take effect until fallback rates actually apply, if a later date).

• Will remain constant upon trigger.

• No transition period.

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ISDA May 2019 Fallback Consultations Results – Pre-Cessation Issues

• 2019 Pre-cessation Consultation for LIBOR and Certain Other Interbank Offered Rates: 

• In general, the respondents fell into three categories, without a clear majority in any one category: 

• Those who supported adding a pre-cessation trigger to the permanent cessation triggers in the “hard wired” amendment to the 2006

ISDA Definitions and related protocol. 

• Those who supported use of the pre-cessation trigger provided that it was implemented with optionality and flexibility (or indicated 

that their support for the trigger depended on a number of factors).

• Those who opposed the pre-cessation trigger. 

• Respondents also expressed a number of issues for consideration related to the potential pre-cessation trigger itself and 

how to implement such a trigger. 

• Report summarizing responses published October 21, 2019, available at https://www.isda.org/a/kkaTE/2019.10.21-

Anonymized-Pre-Cessation-Consultation-Report.pdf.

• November 2019 Letter from FSB OSSG to ISDA

• December 2019 Response from ISDA to FSB OSSG

• Available on ISDA website at https://www.isda.org/2019/12/04/isda-letter-to-fsb-ossg-on-pre-cessation-issues/.

• ISDA is moving forward with implementation of permanent cessation fallbacks.

• As we finalize the work to permanent cessation fallbacks, we will simultaneously work with regulators and the industry to 

increase market understanding of the implications of LIBOR being deemed non-representative, and will attempt to build a 

consensus on how to implement pre-cessation fallbacks.

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ISDA Consultation – Status and ISDA’s Next Steps

• Q4 2019 – Q1 2020:

• Supplemental consultation on spread and term adjustments for EUR LIBOR and EURIBOR derivatives fallbacks.

• Q1 2020: 

• ISDA and Bloomberg finalize full methodologies for fallback rates.

• ISDA publishes amendments to the 2006 ISDA Definitions and protocol for legacy transactions.

• Q1 2020 – Q2 2020:

• Bloomberg publishes adjustments and fallback rates.

• Q2 2020: 

• Amendments to the 2006 ISDA Definitions and amendments made by protocol (i.e., amendments to include amended 

provisions of the 2006 ISDA Definitions in legacy transactions) take effect.

• TBD (once the market has additional information identified in ISDA December 2019 letter to the 

FSB OSSG):

• Consultation on pre-cessation issues and development of documentation solution (based on results of consultation).

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