ISDA has published the results of its consultation on the spread adjustments required to use a backwards-looking, daily compounded, RFR as a substitute for the equivalent LIBOR, for USD, CHF and HKD LIBOR rates, and expects to produce fallbacks for inclusion in its standard definitions (as anticipated by FM Update 21st June). This will be based on “the historical mean/median approach” – a technical aspect best explained by reference to the ISDA website if you are interested but which probably does not require deep understanding by us.

Respondents were keen to use the same methods as would apply to GBP and EUR. The ISDA definitions are expected to be amended before the end of the year and an ISDA protocol will also be developed to enable firms to adapt legacy derivatives contracts. A further consultation regarding EUR fallbacks will be held after ESTR publication begins in October. ISDA notes that, since the adjusted fallback will not match the relevant IBOR exactly, there will be winners and losers if the fallback is triggered, and so voluntary adoption of RFRs before any permanent cessation of an IBOR will be the preferable route for many.