The International Swaps and Derivatives Association (ISDA) has published a speech given by its chief executive, Scott O’Malia. The speech was given at the ISDA Symposium – Financial Benchmarks.

In his speech Mr O’Malia covers the ISDA’s work in developing alternative risk-free rates. He also discusses a few high-level principles that should guide market adoption of the new rates, including principles for rates transition. Mr O’Malia also briefly outlines the ISDA’s work to choose fallbacks to the IBOR rates. The ISDA’s work to develop fallbacks has focused on those markets with formal initiatives under way to select risk-free rates. That means work to determine a fallback for euro LIBOR and EURIBOR is still at an early stage.

In the final part of his speech Mr O’Malia talks about the EU Benchmarks Regulation (BMR). He notes that:

  • as part of the BMR , counterparties subject to the rules are required to include a plan of action in their documentation, which sets out the steps that will be taken if the reference benchmark ceases to exist or is materially altered;
  • the ISDA is running a separate industry working group looking at the implications of this requirement on the broader benchmark universe, with the aim of making a recommendation on how to approach this. It could involve an amendment to the ISDA definitions;
  • the BMR also provides that from 2020, or 2018 for new benchmarks, EU entities will be prohibited from using any third-country benchmark in the EU unless that benchmark has been recognised, been deemed equivalent or has been endorsed by the European authorities. As it stands, it is currently unclear how the recognition/equivalence/endorsement process with work in practice; and
  • there are also concerns with regards to EU-administered benchmarks. Applications for registration and authorisation need to be submitted from January 1, but there is no indication of when the infrastructure to allow applications to be made will be up and running.

View ISDA speeches and testimonies, 15 June 2017