• BCMstrategy, Inc.

QOTD -- #LIBOR in Australia

In the last 24 hours, the entire Australian financial policy community felt compelled to issue the following joint statement regarding the LIBOR transition:

It is not every day that we see policymakers not only endorsing but also urging implementation of an industry standard that has not yet been published. Welcome to the sometimes chaotic, always rushed LIBOR transition process.

Many had hoped that the ISDA protocols for fallbacks would be published by now. The latest, greatest date for publication is now 23 October (ten days from today).

In fairness, the details will come as no surprise to policymakers. Regulators and ISDA have been working closely together for years, as the Financial Stability Board noted a few days ago:

"The FSB’s Official Sector Steering Group (OSSG) has engaged regularly with ISDA during the significant programme of work that it has undertaken since July 2016 to strengthen the robustness of derivatives markets as part of global benchmark reforms. The fallbacks and related triggers that will be implemented via the Protocol and Supplement are based on a series of open consultations by ISDA that have resulted in broad market consensus."

The clear hope is that three months will be sufficient time to update legacy contracts with the new fallbacks language. But the long negotiation time paired with the complexity of the contract adjustment process across asset classes leave enough uncertainty to warrant today's joint statement from Australian authorities.

The LIBOR transition process is not just getting real. If the fallbacks protocol is published as planned on October 23, we can expect to see additional statements from other policymakers around the world asking the financial sector to implement the new language quickly.


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