On October 23, ISDA launched a supplement that will amend its standard definitions for interest rate derivatives to incorporate robust fallbacks for new IBOR derivatives entered into from January 25, 2021. From that date, all new cleared and non-cleared derivatives that reference the definitions will include the fallbacks.

Simultaneously, ISDA launched the IBOR Fallbacks Protocol, which enables firms to incorporate the fallbacks into their legacy non-cleared derivatives trades with other counterparties that adhere to the protocol. Those changes will also become effective on January 25.

More than a thousand entities have so far adhered to the protocol, but there are some misunderstandings about what the fallbacks are meant to do. Katherine Tew Darras, ISDA’s general counsel, helps explain some of those misperceptions.

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