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Demystifying value transfer: A critical consideration in the transition away from LIBOR
Learn about the concept of value transfer and how Invesco is addressing this issue as we prepare for the challenges of LIBOR transition.
The International Swaps and Derivatives Association (ISDA) released the Interbank Offered Rate (IBOR) Fallbacks Supplement (Supplement) and the ISDA 2020 IBOR Fallbacks Protocol (Protocol) on October 23, 2020. The Supplement will amend ISDA’s standard definitions booklet for interest rate benchmarks to incorporate robust fallbacks for derivatives linked to or referencing certain IBORs. The Protocol will enable counterparty pairs to incorporate these robust fallbacks into legacy non-cleared derivatives trades if both parties choose to adhere to the Protocol.
The new fallbacks are based on adjusted versions of the risk-free rates identified as alternatives to IBORs in the relevant jurisdictions. The Supplement and Protocol will both become effective on January 25, 2021. From that date forward, all new cleared and non-cleared derivatives trades that reference the definitions will include the fallbacks. The fallbacks for a particular currency will apply following a permanent cessation of the IBOR in that currency. For derivatives that reference certain LIBORs, the fallbacks would also apply following a determination by the UK Financial Conduct Authority (FCA) that LIBOR in that currency is or will no longer be representative.
Invesco has elected to adhere to the Protocol on behalf of its managed funds and accounts. Additionally, Invesco is currently in the process of determining which of its derivatives counterparties have not adhered to the Protocol.
The information and any opinions expressed in this document are derived from proprietary and non-proprietary sources deemed by Invesco to be reliable but are not necessarily all-inclusive and reflect Invesco’s current understanding of the expected changes as of December 18, 2020. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions or actions taken in reliance thereon is accepted by Invesco, its officers, employees or agents.
Demystifying value transfer: A critical consideration in the transition away from LIBOR
Learn about the concept of value transfer and how Invesco is addressing this issue as we prepare for the challenges of LIBOR transition.
FCA LIBOR cessation announcement
Read the announcement by the Financial Conduct Authority (FCA) with the dates that LIBOR rates will cease to be published or will no longer be representative.
IBA Consultation: What you need to know
Read key information from the IBA consultation, which describes its intention to cease publication of the one-week and two-month US dollar LIBOR settings.
Understanding LIBOR cessation impacts: Performance benchmark exposure
Understand how moving away from London Interbank Offered Rate (LIBOR) to alternative reference rates impacts performance benchmark exposure.
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