On 23 April 2020, the International Swaps and Derivatives Association, Inc. (ISDA) and Bloomberg Index Services Limited (BISL) published an IBOR Fallback Rate Adjustments Rule Book, which sets out the methodology, rules and conventions that BISL will implement to calculate rate adjustments in derivative contracts in relation to the transition from inter-bank offered rates (IBORs) to overnight Risk Free Rates (RFRs).

IBORs and RFRs are fundamentally different (for example, RFRs are backwards looking rather than forward looking) so key adjustments are needed if they are to be used in derivative contracts originally entered into referencing IBORs. To address the risk that one or more IBORs are discontinued while market participants continue to have exposure to that rate, participants are encouraged to agree to contractual fallback provisions in derivative contracts that would provide for adjusted versions of the RFRs as replacement rates. ISDA has run several consultations to finalise the adjustment methodologies for derivatives contracts and has selected BISL as the vendor to calculate and distribute RFR adjustments.

ISDA has also announced a tentative timetable for fallback implementation. The table identifies the following key milestones:

  • Publication of consultation results and announcement of next steps for implementing permanent cessation and pre-cessation fallbacks (between late April 2020 and early May 2020).
  • Publication of Bloomberg indicative fallback rates (first half of 2020).
  • Publication of amendments to the 2006 ISDA Definitions and related protocol (TBD).
  • Effectiveness of amendments to the 2006 ISDA Definitions and related protocol (3 to 4 months after publication).