ISDA consultation on ICE Swap Rate fallback

 ISDA has published a consultation on the fallback for ICE Swap rates.

The situation related to ICE swap rates is complex and no trivial solution exists. But this situation was predictable and has been predicted for several years. The issues under discussions where already present in my first answer to ISDA consultations in 2018.

The proposals in the ISDA consultations are based on approximate spread for GBP and USD LIBOR swap rates versus OIS rates. Those approximations have been proposed by the Sterling working group and ARRC. Some approximations are necessary due to the early decision taken by ISDA and regulators on the transition.

Unfortunately the working papers proposed by the working groups hide significant issues and do not propose a balanced analysis of the problem. From public documents available one can infer that the working groups had information indicating that their working papers did not provide all relevant information and did not include them.

At ISDA's request, The Battle Group has done a review of those papers, unfortunately the review is even weaker than the the papers themselves. Its start with the hypothesis that what is proposed in good in principle, without justification, and then just say that "something" is "necessary". There is no analysis that what is proposed is "sufficient", or even that what is proposed is the best that can be done within the restrictive hypothesis that they arbitrarily decided to impose.

If I was head of model validation for a financial institution using ICE Swap Rate and I was receiving such a report, I would sent it back. It sounds like what a master student would do for a homework, not an in depth analysis on which the market can rely on for such an important issue. In their defense, they indicate "Readers of this report should seek independent expert advice [...]" and that is the part of the report that I agree the most with.

The natural question is who will provide the independent advise if all the documents presented by ISDA are biased?

You can ask me ;) I cannot promise a perfect solution, but I can promise that I will do better than the above mentioned documents.

I have answered the ISDA consultation and my answer can be find attached. My answer should not be read a model review of what is proposed, but as an analysis that such a review is necessary and the proposed documents do not fulfill the requirements.

Answer to ``2021 Consultation on Fallbacks for GBP LIBOR ICE Swap Rate and USD LIBOR ICE Swap Rate'' issued by ISDA

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