In a webinar held this morning, ISDA reviewed the key points of its 2020 Pre-Cessation Consultation, summarizing the current proposals with respect to permanent cessation triggers and related fallback rates for key IBORs, as well as the proposed language for a pre-cessation trigger. Once finalized, these proposals will be memorialized in ISDA's pending Supplement to the 2006 ISDA Definitions (for new contracts, the "Definitions Supplement") and 2020 IBOR Fallbacks Protocol (for legacy contracts, the "Protocol"). ISDA also provided examples of how a pre-cessation trigger would be implemented, as well as a timeline for publication (targeted for 3Q2020) and effectiveness (three to four months later) of the Definitions Supplement and Protocol.

Comments on the consultation are due March 25. ISDA emphasized that an extension will not be possible and that the following criteria must be satisfied in order for ISDA to publish a Protocol that implements a pre-cessation trigger in all legacy contracts between adhering parties:

  • At least 70 market participants (excluding professional services firms or trade associations) must submit responses, of which at least 35 percent must be from participants other than bank/broker-dealers and infrastructure providers;
  • At least 65 percent of respondents affirm that the Definitions Supplement and Protocol should include both permanent and pre-cessation trigger events, of which at least 35 percent must be respondents other than bank/broker-dealers and infrastructure providers; and
  • Respondents rejecting the inclusion of both permanent and pre-cessation trigger events, and also indicating that they would be unavoidably harmed by or unable to use a Definitions Supplement and Protocol including both types of trigger events, "do not represent a significant portion of" a particular market segment (e.g., responding corporations).

If the criteria are not met, ISDA intends to publish a Definitions Supplement and Protocol that implement permanent cessation triggers only, unless both parties to a contract opt in to the inclusion of pre-cessation triggers. In such a case, the pre-cessation trigger would apply under the Protocol only if each of the adhering counterparties to a covered contract has made the same election.

A recording of this webinar, with its related slide deck, will be available on ISDA's website later this week.

We encourage all market participants to review and respond to this important consultation.

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