ISDA issued a second consultation on implementing pre-cessation fallbacks for derivatives in response to a request from the Financial Stability Board Official Sector Steering Group.

In the new consultation, ISDA asked respondents whether expected amendments to the 2006 ISDA Definitions should contain triggers for benchmark change based on a "non-representativeness" pre-cessation trigger. Per the consultation, the spread adjustment would then be calculated as of the relevant "non-representativeness" announcement date (or permanent cessation, if earlier), but fallbacks would be implemented based on a permanent cessation or a statement by the UK Financial Conduct Authority ("FCA") that LIBOR is "non-representative."

As previously covered, responses to the first ISDA consultation regarding Pre-Cessation Triggers were mixed. However, ISDA CEO Scott O'Malia believes that the second consultation will generate a better response due to several recent developments, such as:

  • clarification from the FCA and the ICE Benchmark Administration on the "reasonable period" during which LIBOR would continue to be published following the occurrence of a related Pre-Cessation Trigger; and
  • a recent consultation launched by LCH Limited regarding amendments to its rulebook to implement Pre-Cessation Triggers.

Comments on the second consultation are due by March 25, 2020. ISDA noted that this deadline will not be extended.

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