Consultation on IBOR fallbacks: Question 3

Game of Benchmarks: Season 2



Game of Benchmarks: Season 2 - Episode 3: Timing

 

Question related to: Description of Adjusted RFR - Fixing timing


The simplest option for adjusted RFR in the ISDA IBOR fallback consultation is Option 1: Spot Overnight Rate. The option simply replaces an IBOR fixing on a given date by an Overnight fixing on the same date.

Even this simplest option has to be assessed carefully in term of practical achievability. The overnight rate are known only at the end of the fixing date or the next day in the morning while the IBOR fixing are known shortly after 11:00 am. Is there some provisions in some derivative contracts that would require to know the fixing by 11:00 am? For example the cap/floor are exercised — even if it is automatic exercise — at 11:00 am. Can the exercise mechanism be delayed to the end of the day or even the next day? The fallback provision should describe what would happen to the contracts that have a tied schedule linked to the fixing time. The GBP FRA may be one of those types of contracts where knowing the fixing result at 11:00 am is important as they have to be paid on the same day. What would happen to the fallback provision if the derivative contract is written in such a way that obtaining the fixing by 11:00 am or shortly thereafter is important?


A list of FAQ is maintained by ISDA.

Season 2: The questions

 

Question 1: Question related to Option 3: Compounded Setting in Arrears Rate

Question 2: Question related to: Description of Fallbacks - Triggers

Question 3:  Description of Adjusted RFR - Timing

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