With the coronavirus situation rapidly escalating and markets tumbling across the globe, market participants have had to fully turn their focus to testing and executing business continuity plans and managing volatility and liquidity issues. Other topics will understandably take more time to address in the current environment – which is why we announced an extension to our outstanding consultation on pre-cessation fallbacks today.

The deadline for responses will now be April 1. We feel this extra time is appropriate to ensure derivatives market participants are able to give this important consultation the necessary time and consideration.

As a reminder, the consultation asks whether pre-cessation fallbacks should be included alongside permanent cessation fallbacks as standard language in the amended 2006 ISDA Definitions and in a single protocol, with no optionality. If there is sufficient support for this approach, it would mean a fallback would take effect if a covered interbank offered rate (IBOR) ceases to exist or a regulator announces it is no longer representative of the underlying market, whichever comes first.

Coronavirus is having an impact on other deadlines and obligations – and ISDA is grateful to regulators for moving quickly to clarify their requirements and to provide relief where appropriate. However, it’s worth noting that the initiative to transition from LIBOR and adopt risk-free rates isn’t like other deadlines.

Specifically, whether LIBOR ends at the end of 2021 is dependent on whether banks continue making submissions after this date. The UK Financial Conduct Authority has made it clear that it does not intend to compel banks to submit after 2021, so ISDA is working on the basis that the various major benchmark reform milestones still have to be met.

When it comes to fallbacks, ISDA still plans to publish amendments to the 2006 ISDA Definitions to implement fallbacks for new derivatives trades linked to certain IBORs later this year. A protocol will simultaneously be published that will modify legacy transactions for those firms that choose to adhere. Bloomberg is also working to publish indicative spread calculations and all-in fallbacks rates, and these are expected shortly.

It’s important we get the fallbacks right – they will go a long way to reducing the systemic risk posed by continued exposure to IBORs. We therefore hope the extension to the pre-cessation consultation deadline will give all participants the time they need to fully execute their business continuity plans and deal with immediate issues related to the pandemic, in order to give the consultation the necessary time and consideration.

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