FSB全球金融稳定委员会-FSB-letter-to-ISDA-about-derivative-contract-robustness-to-risks-of-interest-rate-benchmark-discontinuation_3页_273kb

ISDA and OSSG on Derivative Contract Robustness to Interest Rate Benchmark Discontinuation

Core Content

The document outlines the concerns and recommendations of the Co-chairs of the Financial Stability Board's Official Sector Steering Group (OSSG) regarding the robustness of derivative contracts in the event of the discontinuation of key interest rate benchmarks, particularly the Interbank Offered Rates (IBORs). The OSSG has been closely following ISDA's efforts to enhance contract language to ensure continuity and stability in financial markets as the transition from LIBOR progresses.

Main Views and Key Issues

1. Additional Trigger Events

• Purpose: To provide a mechanism for moving to a fallback rate when LIBOR is no longer representative.
• OSSG's Recommendation: ISDA should consider adding an additional trigger that activates if the Financial Conduct Authority (FCA) determines LIBOR to be non-representative.
• Rationale: This would prevent market participants from being exposed to risks if LIBOR is discontinued without a suitable replacement.
• Support from Market Participants: The ARRC has included a similar trigger in its consultations for cash products, and market respondents have shown support for this approach.
• Request: ISDA should consult with relevant authorities for other IBORs to determine whether to include such a trigger.

2. Timing of Consultations

• USD LIBOR Exposure: Estimated at USD 200 trillion, making it the most widely used IBOR.
• ISDA's Plan: To consult on USD LIBOR, CDOR, HIBOR, and SOR in early 2019.
• OSSG's Support: Strongly endorses this timeline.
• Preference for Historical Mean Method: Market respondents have shown a clear preference for using the historical mean method for spread adjustments, which could be quickly implemented for USD LIBOR if supported in a second consultation.
• EURIBOR and EUR LIBOR Coordination: ISDA is encouraged to coordinate with the EUR RFR Working Group to determine the best time for a dedicated consultation on EURIBOR and EUR LIBOR.

3. Governance and Transparency

• Importance of Process: The OSSG emphasizes the need for a careful and transparent process in making final decisions on fallback rates.
• ISDA's Engagement: ISDA has outlined steps and processes for its determination, and plans to engage with the OSSG at regular intervals before publication.
• Additional Transparency: The OSSG encourages ISDA to ensure transparency in how the Board and/or Benchmark Committee will make decisions.
• Recommendation: ISDA should include consultations on the technical details of the fallback mechanism, such as the parametrisation of the historical mean/median look-back and the calculation and application of the credit spread over the compounded rate.

Key Information

• Document Date: 12 March 2019
• Sender: Co-chairs of the OSSG (Andrew Bailey and John Williams)
• Recipient: ISDA (Mr Scott O'Malia and Mrs Katherine Tew Darras)
• Focus: Enhancing the robustness of derivative contracts in the face of potential IBOR discontinuation.
• Main Currencies: LIBOR (USD, GBP, JPY, CHF, SGD), EURIBOR, EUR LIBOR, CDOR, HIBOR, SOR.
• Fallback Mechanism: ISDA is working on revised fallback language to ensure continuity and reduce systemic risk.
• Market Participation: ISDA has received thoughtful and comprehensive feedback from market participants across multiple currencies.

Conclusion

The OSSG acknowledges ISDA's efforts in improving the robustness of derivative contracts and encourages continued engagement with market participants and relevant authorities to ensure the best possible outcomes. The addition of new triggers, timely consultations, and transparent governance are viewed as essential to mitigating risks associated with the discontinuation of IBORs and ensuring a smooth transition to alternative benchmarks.