ISDA 2013 Discontinued Rates Maturities Protocol
Open from October 11, 2013
ISDA has prepared this list of frequently asked questions to assist in your consideration of the ISDA 2013 DISCONTINUED RATES MATURITIES PROTOCOL (the Protocol).
THESE FREQUENTLY ASKED QUESTIONS DO NOT PURPORT TO BE AND SHOULD NOT BE CONSIDERED A GUIDE TO OR AN EXPLANATION OF ALL RELEVANT ISSUES OR CONSIDERATIONS IN CONNECTION WITH THE PROTOCOL. PARTIES SHOULD CONSULT WITH THEIR LEGAL ADVISERS AND ANY OTHER ADVISER THEY DEEM APPROPRIATE PRIOR TO USING OR ADHERING TO THE PROTOCOL. ISDA ASSUMES NO RESPONSIBILITY FOR ANY USE TO WHICH ANY OF ITS DOCUMENTATION OR OTHER DOCUMENTATION MAY BE PUT.
1. What does the Protocol do?
The Protocol provides a method for determining the rate where the provider thereof is no longer publishing one or more maturities for a Floating Rate Option specified for a Protocol Covered Transaction but that provider is publishing maturities which are longer and shorter than the discontinued maturity for that Floating Rate Option. The Protocol enables parties to amend the terms of their Protocol Covered Transactions so that certain rates specified for those Protocol Covered Transactions will be determined by interpolating the nearest shorter rate and nearest longer rate for the Floating Rate Option of the affected rate. For example, the British Bankers Association discontinued publishing LIBOR for CHF, EUR, GBP, JPY and USD in respect of 2 weeks, 4 months, 5 months, 7 months, 8 months, 9 months, 10 months and 11 months. If a Protocol Covered Transaction specifies 5 month USD-LIBOR-BBA as the Floating Rate Option, parties who adhered to the Protocol would interpolate 3 month USD-LIBOR-BBA (the nearest shortest rate) and 6 month USD-LIBOR-BBA (the nearest longest rate) to get the rate for the related Reset Date.
2. What does the Protocol do if there is no shorter rate or longer rate for the Floating Rate Option of the affected rate as of the relevant Reset Date?
The Protocol does not apply to the rate for that Reset Date or possibly to any Reset Date for that rate if there is no shorter or longer maturity for the Floating Rate Option throughout the trade. So, the Protocol does not apply to a Reset Date for a discontinued rate if there is a shorter rate but not a longer rate, a longer rate but not a shorter rate or neither a shorter rate nor a longer rate for the Floating Rate Option of the affected rate. For example, the Protocol does not apply to Canadian dollar LIBOR, as this rate has been completely discontinued by the BBA and there are no longer any maturities for this Floating Rate Option. Parties to transactions for which the Protocol will not apply to one or more Reset Dates should discuss with their counterparties how to proceed in such cases, including entering into amendments on a bilateral basis.
3. Does the Protocol use linear interpolation?
When the Protocol applies it uses linear interpolation unless the Confirmation specifies another form of interpolation.
4. How does the Protocol work if a rate has been completely discontinued and there are no remaining maturities?
As per Question 2, the Protocol will not apply to that rate. The Protocol applies only to Protocol Covered Transactions that relate to one or more discontinued Floating Rate Options where relevant longer and shorter maturities are retained. For example, the BBA discontinued publishing LIBOR for CAD, DKK, NZD and SEK. The Protocol will not apply to an affected LIBOR Floating Rate Option for any of those rates.
5. How does the Protocol work if a rate has been expressly stated to be determined by interpolation of the rates determined by two specified Designated Maturities?
If the Confirmation for a Protocol Covered Transaction specifies that the rate for a Reset Date (e.g., for a stub period) is to be determined by reference to interpolation of certain periods for the Floating Rate Option, at least one of which is a discontinued maturity then, if there is a shorter rate and a longer rate for the Floating Rate Option of the affected rate, the rate for that Reset Date will be determined by interpolating those two rates. An example where one of two specified Floating Rate Options references a discontinued maturity is if the Confirmation for a Protocol Covered Transaction specifies that the rate for a Reset Date for a 5 ½ month period is linear interpolation of 5 month EUR-LIBOR-BBA and 6 month EUR-LIBOR-BBA. In that case, the rate for that 5 ½ month period will be determined by linear interpolation of 3 month EUR-LIBOR-BBA and 6 month EUR-LIBOR-BBA (the nearest shorter and nearest longer available maturities for the 5 ½ month period for that Floating Rate Option). An example where both of two specified Floating Rate Options reference discontinued maturities is if the Confirmation for a Protocol Covered Transaction specifies that the rate for a Reset Date for a 4 ½ month period is linear interpolation of 4 month EUR-LIBOR-BBA and 5 month EUR-LIBOR-BBA. In that case, the rate for that 4 ½ month period will be determined by linear interpolation of 3 month EUR-LIBOR-BBA and 6 month EUR-LIBOR-BBA (the nearest shorter and nearest longer available maturities for the 4 ½ month period for that Floating Rate Option).
6. Does the Protocol only apply to affected LIBOR rates?
No, the Protocol applies to any Floating Rate Option where one or more maturities were discontinued but there is a longer maturity and shorter maturity for that Floating Rate Option.
7. ISDA published a LIBOR BBA Bilateral Amendment Letter, an SGD MAA Amendment Agreement and an SGD Bilateral Amendment Agreement. What prevails if two Adhering Parties have adhered to one or more of those agreements?
If two Adhering Parties executed a LIBOR BBA Bilateral Amendment Letter and then enter into the Protocol, the Protocol will prevail. On the other hand, if two Adhering Parties entered into or executed an SGD MAA Amendment Agreement or an SGD Bilateral Amendment Agreement, the SGD MAA Amendment Agreement or SGD Bilateral Amendment Agreement between them, as applicable, will prevail with respect to an SGD Affected Discontinued Floating Rate Option, regardless of when they entered into or executed the SGD MAA Amendment Agreement or SGD Bilateral Amendment Agreement (but so long as the SGD MAA Amendment Agreement or SGD Bilateral Amendment Agreement, as applicable, was effective on or prior to the relevant Fixing Date, although the SGD MAA Amendment Agreement or SGD Bilateral Amendment Agreement would apply to future Fixing Dates for the relevant Transaction). Where the Protocol references the LIBOR BBA Bilateral Amendment Letter and the SGD Bilateral Amendment Agreement, this is the ISDA published form and includes the relevant modifications (such as including each party’s name) agreed by the parties. Since the SGD MAA Amendment Agreement and SGD Bilateral Amendment Agreement only apply to certain Floating Rate Options, if Adhering Parties are parties to both agreements, then the SGD MAA Amendment Agreement or SGD Bilateral Amendment Agreement between them, as applicable, will prevail in the case of an affected rate for an SGD Affected Discontinued Floating Rate Option and the Protocol will prevail for another affected rate for which there is a longer maturity and shorter maturity for the relevant Floating Rate Option.
8. What if the maturity for a Floating Rate Option gets discontinued after the Amendment Effective Date of my Protocol and that discontinued maturity is used as the Designated maturity for a Transaction?
If the Fixing Date for the relevant maturity for a Floating Rate Option occurs on or after the date on which that maturity is discontinued and on or after the Amendment Effective Date, then the Protocol applies to that Fixing Date regardless of whether the provider of the relevant rate discontinues the maturity therefor before, on or after the Trade Date of the Protocol Covered Transaction.
9. What about fallbacks in the 2006 ISDA Definitions or in a Confirmation?
The Protocol expressly overrides fallbacks in the 2006 ISDA Definitions or in a Confirmation that use Reference Banks to determine a rate. For example, the 2006 ISDA Definitions include a fallback in the definition of certain Floating Rate Options (e.g., USD-LIBOR-BBA) that provides that if the rate is unavailable at the initially specified source, the Calculation Agent is to poll Reference Banks for rates (e.g., USD-LIBOR-Reference-Banks). If a Protocol Covered Transaction referenced a discontinued Floating Rate Option for which there were a longer maturity and a shorter maturity the Protocol overrides the fallback in the ISDA 2006 Definitions that has the rate determined by using rates provided by Reference Banks. If a Confirmation has a fallback that did not rely on Reference Banks (e.g., if the Floating Rate Option for the relevant discontinued Designated Maturity is not available, use another Floating Rate Option), that other Floating Rate Option would be used, assuming it were available. An example would be if the Confirmation provided 5 month EUR-EUROR-Reuters as the fallback if 5 month EUR-LIBOR-BBA was not available on a Reset Date.
10. What if there are other fallbacks in a subsequent protocol?
The Protocol provides that if another protocol is entered into by the Adhering Parties after the Amendment Effective Date and such other protocol specifies a fallback method for determining the affected rate, the subsequent protocol will prevail. For example, in the future a rate source provider may publish a rate for the discontinued maturity of a Floating Rate Option that is similar to that Floating Rate Option that the industry wants to use in lieu of interpolation for the discontinued maturity. If the industry develops a protocol that creates a different result than this Protocol and Adhering Parties enter into that other protocol at a later date, then that subsequent protocol would apply for the relevant affected rates (which may be a subset of what this Protocol covers). The only earlier agreement that supersedes the Protocol for certain Floating Rate Options is the SGD MAA Amendment Agreement or SGD Bilateral Amendment Agreement if the Adhering Parties are also parties to one of those agreements (see Question 7) at the time they adhere to this Protocol.
11. Is the Protocol only relevant for fixed income trades?
No. Protocol Covered Transactions are not limited to a particular asset class. For example, although a typical equity total return swap on a single share has payments based on the appreciation or depreciation of the stock and dividends on the stock, it also has a Floating Amount where the payment is determined by reference to a Floating Rate Option. If the Floating Amounts section referenced a Floating Rate Option with a discontinued maturity for which there is a shorter maturity and a longer maturity, and the parties to that equity swap were Adhering Parties, the Protocol would apply.
12. How to sign up to the Protocol
Is there a closing date for adherence to the Protocol?
There is currently no cut-off date for adherence, but ISDA reserves the right to designate a closing date for the Protocol by giving 30 days’ notice on this site.
13. How do I submit my Adherence Letter?
Each entity executing an Adherence Letter will access the Protocol Management section of the ISDA website at www.isda.org to enter information online that is required to generate its form of Adherence Letter. Either by directly downloading the populated Adherence Letter from the Protocol Management system or upon receipt via e-mail of the populated Adherence Letter, the entity must print, sign and upload the signed Adherence Letter as a PDF (portable document format) attachment into the Protocol Management system. Once the signed Adherence Letter has been approved and accepted by ISDA, the Adhering Party will receive an e-mail confirmation of the Adhering Party’s adherence to the Protocol.
The Adherence Letter(s) should be on your institution’s letterhead, which you are able to upload into the Protocol Management system during the online submission of information to generate the Adherence Letter. Nothing in the form of Adherence Letter available on ISDA’s website may be changed with the exception of completing the details of your institutional name and completing the contact details, date and signature block.
ISDA keeps the executed copy of the Adherence Letter for its files and does not share the executed copy with anyone else. Please do not send your original Adherence Letter(s) by mail to ISDA.
14. Can entities that are not ISDA members sign up to the Protocol?
Yes. The Protocol is open to any entity. ISDA members and non-ISDA members alike adhere to the Protocol in the same way.
15. What is a conformed copy?
A conformed copy of the Adherence Letter means that the name of the authorized signatory (for example, Patricia Smith) is typed rather than having Patricia Smith’s actual signature on the letter. ISDA only posts on its website the conformed copy of all Adherence Letters. A conformed copy of each Adherence Letter containing, in place of each signature, the printed or typewritten name of each signatory will be published by ISDA so that it may be viewed by all Adhering Parties.
16. Who is an authorized signatory?
An authorized signatory to the Adherence Letter is an individual who has the legal authority to bind the adhering institution.
17. SPECIAL CONSIDERATIONS FOR INVESTMENT/ASSET MANAGERS
If you are an investment or asset manager and act on behalf of multiple funds (each referred to here as a “client”), you may sign the Adherence Letter using one of the options below. If the elections in section 1 of the Adherence Letter vary between your clients, you should use the first method and adhere separately for each client individually or adhere for each group of clients with identical elections named/identified in the Adherence Letter. Alternatively, if you have the required authority, you may adhere with the same elections for all clients and then bilaterally agree any relevant variations with your counterparties.
If you have authority to adhere on behalf of all of your clients but do not wish to identify them on the Adherence Letter, you may do so by selecting “Investment/Asset Manager/or other agent on behalf of a fund/multiple funds/or other principal” from the dropdown under “Adherence Type” and naming the Investment/Asset Manager/Agent. Standard language “acting on behalf of the funds, accounts or other principals listed in the relevant Agreement (or other agreement which deems an Agreement to have been created) between it (as agent) and another Adhering Party” will be provided for you.
If you do not have authority from all your clients (or do have authority from all your clients and wish to identify them), you can adhere on behalf of those clients whose permission you have by selecting “Investment/Asset Manager/or other agent on behalf of some but not all funds/or other principal it represents” and naming the Investment/Asset Manager/Agent. Standard language “acting on behalf of the funds, accounts or other principals listed in the appendix to this Adherence Letter in relation to the relevant Agreement (or other agreement which deems an Agreement to have been created) between it (as agent) on behalf of such fund, account or other principal and another Adhering Party” will be provided for you. You must then list the fund name(s) by either naming each in the field provided (“Name of Fund”) or selecting “Add more than 10 funds” and downloading a list of these funds.
The appendix to your Adherence Letter can either name the clients, or identify them with a unique identifier which will be known and recognized by all other Adhering Parties with which the relevant clients have entered into transactions. The appendix to your letter will be posted on the ISDA website with your Adherence Letter listing the clients or, if you have more than ten clients, we will add a link to a document listing these clients.
If you are using the second method above, any Governing Master Agreement which you enter into on behalf of clients that are not listed in your Adherence Letter(s) will not be covered by the Protocol. If you wish to implement the changes contained in the Protocol in those Governing Master Agreements, then you and the relevant counterparty would need to enter into a bilateral agreement to amend those Governing Master Agreements to include those changes.
If (a) you do not have authority from any of your clients or (b) you have authority from some clients only but you are not able to disclose such clients whether by name or a unique identifier, you cannot adhere to the Protocol on behalf of any such clients. In this case, you will need to enter into a bilateral amendment agreement with each relevant counterparty listing the clients whose Governing Master Agreement(s) with that counterparty will be amended by incorporating the amendments made by the Protocol.
If you wish to adhere on behalf of clients, you must ensure that you have the authority to do so from all clients on whose behalf you enter into transactions covered by the Protocol.
If you add a client to an umbrella master agreement after the date you adhere to the Protocol on behalf of your clients (whether that client was an existing client on, or a client acquired after, the Implementation Date) that client will be added to that umbrella master agreement as amended by the Protocol, unless otherwise agreed.
18. Can I change the text of the Adherence Letter?
No. The Adherence Letter must be in the same format as the form of letter published in the Protocol and generated by the Protocol Management webpage.
19. Are there any costs to adhere to the Protocol?
Yes. Each party adhering to the Protocol must submit a one-time fee of U.S. $500 to ISDA at or before the submission of its Adherence Letter. Adhering Parties should review the documents to be amended (i.e., the ISDA Master Agreements or Other Agreements) to identify the entity that signed the documents, and the capacity in which such entity signed the documents, to determine which entity submits the Adherence Letter. For example, if a parent company/agent has signed the agreement on behalf of all entities within the group, then only the parent company/agent needs to adhere. However, if each group entity has its own agreement in place which it has itself executed as principal, then each such entity would need to adhere.
Each individual legal entity is considered a separate Adhering Party for this purpose and would need to pay the adherence fee, except that an Investment/Asset Manager/Agent that adheres on behalf of one or more underlying funds or principals for whom it has entered into an ISDA Master Agreement or Other Agreement, using a single Adherence Letter, would only pay a single adherence fee for that Adherence Letter.
20. Can I revoke my participation in the Protocol?
No. Once an Adherence Letter has been accepted by ISDA, an Adhering Party is bound by all amendments with other parties that have already adhered to the Protocol or, subject to the discussion below, that adhere before a designation of the Annual Revocation Date.
An Adhering Party may, at any time during the period from October 1 to October 31 of a calendar year, deliver to ISDA a notice specifying the Annual Revocation Date as its cut-off date in respect of amendments with future Adhering Parties. The effect of such a letter will be to withdraw adherence for future Adhering Parties as of December 31 in that calendar year (or if such day is not a day on which ISDA’s London office is open, on the next day that ISDA’s London office is open). Although amendments already made will not be revoked, any subsequent adherence by new Adhering Parties after the designated Annual Revocation Date will not bind the party that has submitted a Revocation Notice.
You can, however, bilaterally agree to amend your Protocol Covered Transactions with your counterparty (the other Adhering Party) and any such subsequent amendments will supersede those made by the Protocol to the extent that they are inconsistent.