LIBOR announcements, FCA, protocol and unrepresentativeness

In a recent speech a FCA representative indicated that "announcements about the discontinuation from the end of 2021 of Libor settings could come as early as November or December this year" (see Libor death notice could be served this year – FCA).

In the article, the following sentence is attributed to Edwin Schooling Latter, FCA.
The alternative to signing the Isda protocol, if you do have derivatives that are subject to Isda documentation, [is that] you simply don’t know what will happen to that book of derivatives when Libor ceases or becomes unrepresentative.
This is clearly and objectively incorrect on two aspects: the "don't know" and "unrepresentative".

First, the ISDA protocol is only one possibility, doing nothing is another, but they are many more. In particular it is possible to sign a bilateral agreement to the same intent as the protocol but with effect on one bilateral relation only. This is what I have been recommending for a while (see for example my "Signing the ISDA fallback protocol: a cautionary tale"). This is significantly different as it means that you are not shorting an option without premium (counterparts can decide to sign the protocol or not, looking at their book and who has already sign the protocol) and you can agree on a fair compensation for such an agreement. As I said in a previous blog, I cannot logically reconcile encouraging people to blindly sign the protocol and at the same time requiring no "inferior terms" for customers; the FCA must be schizophrenic or have a different logic than me.

Second, the term "unrepresentative" or something similar does not appear in the current ISDA documentation. So if LIBOR becomes "unrepresentative", whatever that means, we know exactly what will happen to existing contracts for which we have not sign the protocol: nothing! Or more exactly nothing different than if all this unrepresentativeness is simply ignored.



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