Pre-cessation it will be :(

ISDA has announced the preliminary results of the consultation on pre-cessation trigger for LIBOR fallbacks.

The results are:
The initial results indicate a significant majority of respondents are in favor of including both pre-cessation and permanent cessation fallbacks as standard language in the amended 2006 ISDA Definitions for LIBOR and in a single protocol for including the updated definitions in legacy trades.
This goes against my opinion on the question as expressed in a previous blog. This make my cautionary tale about signing the protocol even more valuable. This choice will increase the discrepancy between products, e.g. legacy and new trades. My analysis of that issue was later corroborated by the ARRC.

More than ever, watch out for value transfer!

Note that the consultation was refereeing only to LIBOR (not IBOR in general) and to the FCA (not to regulators in general). We will see if the final wording includes those terms or if (another) workaround is necessary. It seems to be the case as the above-referenced ISDA announcement indicated: "The updated definitions for other covered interbank offered rates (IBORs) will continue to include permanent cessation fallbacks only."

What if IBA transfers its USD-LIBOR IP to a US or a EU entity? Does is means that the pre-cessation part of the definition does not apply anymore to USD-LIBOR? I mention a EU entity beyond the US one, because it would give to EU regulators the power to compel the publication for another 5 years. Same question regarding CHF-LIBOR transferred to a Swiss entity and JPY-LIBOR transferred to a Japanese entity.


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