As we noted in our prior blog post over the summer, the IBOR Fallbacks Protocol and the IBOR Fallbacks Supplement for interest rate derivatives to be published by the International Swaps and Derivatives Association (ISDA) has been on hold while ISDA waits for a positive business review letter from the US Department of Justice (DOJ). This past Friday, ISDA issued a press release that it received the letter from the DOJ on October 1, 2020.
The DOJ letter does not foreclose the possibility that other regulators in Australia, Canada, the European Union and other jurisdictions may raise their own objections. However, the Board of Directors of ISDA has determined that it will release the Supplement and Protocol on Friday, October 23, 2020, and the Supplement and Protocol will take effect approximately three months later on Monday, January 25, 2021. The draft Supplement and draft Protocol have been posted for review, together with a FAQ, sample adoption amendments and descriptive outline.
This is great news for the lending market– the saying ‘better late than never’ comes to mind. The transition from LIBOR to SOFR is a massive undertaking. Market participants will need all the time they can get to complete the transition by the end of 2021. The release is also an important part of fostering the robust SOFR-based derivatives market that will be a key element in developing a SOFR term rate. It may still be a stretch to have a working SOFR term rate before the end of LIBOR’s demise—only time will tell.