ISDA Definitions move post-printing press

ISDA have today published the 2021 ISDA Interest Rate Derivatives Definitions. The definitions consolidate the 70+ supplements since 2006 and incorporate the following updates:

• A new fallback trigger that will take effect if a party is prohibited from using a benchmark
• Generic fallbacks for those floating rates with no existing fallback provisions
• A new methodology to determine the cash settlement amount for swaptions and early terminations to reflect changes in market conventions and increased use of collateral
• Modified calculation agent provisions to allow for determination under the new cash settlement and generic fallback provisions
• Standardised naming conventions for floating rates, with the publication source excised from the definition
• Revisions to payment and calculation provisions to allow for market closure

While the above represents a material update, the vast majority of the 2006 Definitions are simply being carried over to the new 2021 Definitions.

Perhaps the more significant change is in the medium rather than its updated message. The 2021 definitions and successive updates, are published in a purely electronic format, allowing users to rapidly find the consolidated version applicable at a particular trade date and allowing for hyperlinking to definitions and other documents. Each future update will constitute a new and consolidated version delineated by version number and publication date. Other advantages include comparison tools to allow for blacklining between versions. The 2021 Definitions will be available via a new digital documentation platform- My Library– optimised for both mobile and desktop devices. While this advance is hardly cutting-edge technology, the simple increase in ease of access and usability represents significant progress. Looking forward, digitisation of the definitions is a key foundation for the purely digital document of the future, seamlessly and automagically interacting with upstream systems. As a first step on this yellow-bricked road, the 2021 Definitions use machine-readable formulae rather than legal narrative to describe day-count fractions and interpolation processes.

The 2021 definitions are due to be implemented by clearing houses and trading venues on the weekend of the 2/3 October 2021. They will then be market standard definitions from 4 October 2021; while the 2006 Definitions may continue to be referenced, they will no longer be updated as of this date. Clearing houses have stated that from October they will accept trades documented under the 2006 Definition, but they will be cleared subject to the 2021 update. In a marketplace that evolves ever-faster, the 2021 Definitions will be effectively redundant within a relatively short space of time. ISDA have not yet decided whether a Protocol will be made available to facilitate conversion from the 2006 Definitions to the 2021. Either in the absence of a Protocol, or in conjunction with, market participants should add Definitions upgrade to their already-long list of 2021 bilateral amendment projects.

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