ISDA released the "Supplemental Consultation on Spread and Term Adjustments for Fallbacks in Derivatives Referencing USD LIBOR, CDOR and HIBOR and Certain Aspects of Fallbacks for Derivatives Referencing SOR" (the "Supplemental Consultation").
As previously covered, the Supplemental Consultation is a follow-up to ISDA's "Consultation on Certain Aspects of Fallbacks for Derivatives Referencing GBP LIBOR, CHF LIBOR, JPY LIBOR, TIBOR, Euroyen TIBOR and BBSW" (the "July 2018 Consultation"). Consistent with the results of the July 2018 Consultation, ISDA stated in the Supplemental Consultation that the overwhelming majority of respondents preferred the "compounded setting in arrears rate" for the term adjustment to the applicable risk-free rate ("RFR"). Further, the respondents preferred the "historical mean/median approach" for the spread adjustment to the applicable RFR. ISDA also noted that respondents expressed a preference for using the same term adjustment and spread adjustment across all RFRs covered by the Supplemental Consultation and the July 2018 Consultation.
Based on the preliminary results, ISDA expects to develop fallbacks for USD LIBOR, CDOR and HIBOR using (i) the compounded setting in arrears rate for the term adjustment and (ii) the historical mean/median approach for the spread adjustment.
ISDA expects to publish an anonymized and aggregated summary of the feedback to Supplemental Consultation in August 2019, along with its final decision regarding the term adjustment and spread adjustment to use for the benchmarks covered by the Supplemental Consultation.
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