On March 5, 2021, the UK Financial Conduct Authority (FCA) announced firm dates for the cessation of publication for 26 LIBOR settings, and the dates on which the remaining 9 LIBOR settings will be non-representative of the underlying market. This announcement is an “index cessation event” for all 35 LIBOR settings under the provisions of the ISDA 2020 IBOR Fallbacks Protocol and IBOR Fallbacks Supplement.
The FCA announcement confirmed the following publication end dates for the following LIBOR benchmarks:
- Immediately after December 31, 2021 for:
- all euro and Swiss franc LIBOR tenors
- overnight, 1-week, 2-month and 12-month sterling LIBOR
- spot next, 1-week, 2-month and 12-month yen LIBOR
- 1-week and 2-month USD LIBOR
- Immediately after June 30, 2023 for overnight and 12-month USD LIBOR
In addition, the FCA confirmed in its announcement that the following LIBOR benchmark settings will be non-representative of the underlying market as of the dates set forth below:
- Immediately after December 31, 2021 for:
- 1-month, 3-month and 6-month yen LIBOR
- 1-month, 3-month and 6-month sterling LIBOR
- Immediately after June 30, 2023 for 1-month, 3-month and 6-month USD LIBOR
As a result of the index cessation event, outstanding derivatives and financial contracts that are subject to adherence to the ISDA 2020 IBOR Fallbacks Protocol or that incorporate the IBOR Fallbacks Supplement will automatically fallback to the adjusted risk-free rate plus spread on the following dates:
- After December 31, 2021: outstanding contracts that reference all euro, sterling, Swiss franc and yen LIBOR settings
- After June 30, 2023: outstanding contracts that reference all USD LIBOR settings.
- Note that, for the period between December 31, 2021 and June 30, 2023, the fallbacks methodology provides that the rate for the 1-week and 2-month USD LIBOR settings will be computed using linear interpolation for that period, falling back to the adjusted risk-free rate plus spread after June 30, 2023.
ISDA has separately confirmed that the “spread adjustments” used in its IBOR fallbacks will be fixed as of March 5, 2020 as a result of the FCA’s announcement.
The FCA also announced that it will consider whether the ICE Benchmark Administration (IBA) should be required to continue publishing 1-month, 3-month and 6-month USD LIBOR on a non-representative, synthetic basis for a further (undetermined) period after June 30, 2023. The FCA will also consult on requiring publication on a synthetic basis for the 1-month, 3-month and 6-month sterling and yen LIBOR settings after December 21, 2021. The FCA emphasized in its announcement that these synthetic LIBOR benchmarks are intended to accommodate remaining legacy contracts, and are not to be used in any new contracts.
The ISDA 2020 IBOR Fallbacks Protocol incorporates updated risk-free rate fallbacks into legacy uncleared derivatives and other financial contracts (including repo, securities lending and forward transactions documented under industry standard master agreements), and remains open for adherence.
Seward’s derivatives lawyers are part of Seward’s LIBOR Transition Task Force and have been advising clients on the implications of adhering to this protocol. Please contact one of the lawyers listed below or the Seward attorney you primarily engage with if you have any questions about these developments or other issues related to LIBOR transition.
Miki Navazio, Partner, firstname.lastname@example.org
Lauri Goodwyn, Counsel, email@example.com
Dan Bresler, Counsel, firstname.lastname@example.org
Seward & Kissel’s Derivatives Practice
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