Fallback: ISDA video

I watched the ISDA Video Interview: Why Should I Update the Fallbacks in My Derivatives Contracts?

I found it more balanced than previous ISDA's publications. I provide below some quotes and comments:

They [fallbacks] are a one size fits all approach.

You risk management requirements are not "one size fits all". Spend as much time as necessary to analyze if the proposed size is a good fit for you. Plenty of different sizes, colors, models are available. Don't succumb to holiday season advertisement for them. Advertisement may be fine for cookies, not for long term risk management. One signature on a protocol is for ever, but it may not be diamond!

They may not result in the best outcome for all market participants and all products.

Some of those issues have been highlighted in several independent documents over the last 2 years. It would be good to have ISDA expanding a little bit on this. Maybe providing a forum for independent analysis to be published and a compensation mechanism for the analysis. Large amounts of money has been spent on legal advise. How much has been spent on "quant" advise for the good of the derivative community and on model validation?

The transactions may be economically different, sometimes significantly different.

Remember my "Has value transfer in LIBOR fallback started?" from November 2018, the day after the publication of the first ISDA consultation results? I wish that ISDA had been more forthcoming on the value transfer impacts up front, in its September 2018 consultation document. 

For bilateral trades, it is not too late to refuse the value transfer to your counterparty. For that you need to be cautious with signing the ISDA protocol and have expert opinion on the actual value of your trades without the new definitions. Don't hesitate to refer to the LIBOR transition page from muRisQ for suggestions.

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