Landmark LIBOR date delayed

ISDA yesterday announced a further delay to the publication of the long-awaited IBOR Fallbacks Protocol. CEO Scott O’Malia used the ISDA derivatiViews blog to inform the market that the effective date of the protocol is now expected to be mid-late January, referencing a letter to this effect sent to the Bank of England and the Federal Reserve. Market participants had been expecting publication by the end of September, with a consequent effective date at year end. Initially expected in Q1 2020, the protocol was delayed until July pending a consultation on the inclusion of pre-cessation triggers. The final text has been parked with the US Department of Justice (DoJ), awaiting a positive competition review. Working to their own unannounced calendar, the DoJ delay potentially brings the protocol effective date into conflict with the dreaded year-end code freeze.

The new, necessarily provisional timeline is as follows:

1. Early to mid October 2020- ISDA informs the market of publication date with two weeks’ notice
   1. Participants may sign up to the protocol during the 2 week notice period on a binding but non-public basis. The intention of this “escrow” period is to give a kick start to the official launch date.
2. Protocol published mid-late October 2020- triggering an approximately 3 month adherence before the effective date. Note that adherence may continue after the effective date.
3. Protocol becomes effective for all adherents mid to late January 2021

 Against the years of preparation to reach this point, a delay of up to a month may not seem material. This would certainly be so if the end’ 2021 date of Libor’s demise showed any sign of movement. It hasn’t, Regulators have remained consistently insistent that the benchmark’s date with destiny will not be changed. The required amendments to the vast majority of legacy derivatives, represent the largest repapering exercise ever undertaken. There are products which the protocol cannot cover, e.g cash settled swaptions, caps, floors, accrual swaps etc. and historically there has been a majority who are disinclined to “auto-amend”.  However, the protocol is central to the project, the degree of adherence will directly determine the need for more time and resource-intensive bilateral negotiation.

ISDA and their members are to be congratulated on their work in the preparation of the protocol and bilateral amendment templates- this latest delay is outside their control. However, an already truncated timeline has just got shorter.

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