The International Swaps and Derivatives Associations (ISDA) has published the ISDA IBOR Fallbacks Protocol. The ISDA IBOR Fallbacks Protocol is a way for parties to efficiently and electronically amend, with their adhering counterparties, specific master agreements and transaction confirmations by incorporating the new fallbacks (replacement benchmarks).

In addition, Supplement 70 to the 2006 ISDA Definitions incorporates the same fallbacks into new master agreements and transaction confirmations. Both the ISDA IBOR Fallbacks Protocol and Supplement 70 to the 2006 ISDA Definitions took effect on 25 January 2021.

In support of MUFG's comprehensive LIBOR Transition Strategy, MUFG Securities EMEA plc; MUFG Securities (Europe) N.V.; and MUFG Bank,ltd, has adhered to the ISDA IBOR Fallbacks Protocol, and we encourage clients to reach out to their advisers to discuss whether the ISDA IBOR Fallbacks Protocol may be part of an appropriate solution for them.

By adhering to the ISDA IBOR Fallbacks Protocol, market participants agree that their legacy derivative contracts with other adherents will include the amended floating rate option for the relevant IBOR and will therefore include the fallback. The ISDA IBOR Fallbacks Protocol and Supplement 70 to the 2006 ISDA Definitions takes into account the following:

• facilitate inclusion of the new fallbacks in existing non-cleared IBOR derivatives transactions between counterparties that both adhere to the ISDA IBOR Fallbacks Protocol.
• include fallbacks that would apply upon a 'non-representative' determination for LIBOR.
• include the amended floating rate option (ie, the floating rate option with the fallback) for the relevant IBOR transactions incorporating the 2006 ISDA Definitions from 25 January 2021.Unless parties have adhered to the ISDA Protocol or bilaterally amend their contracts, any transactions entered into prior to 25 January 2021 (so-called legacy derivatives contracts) will continue to be based on the 2006 ISDA Definitions as they existed before they were amended pursuant to Supplement 70 of the 2006 ISDA Definitionsand therefore will not include the amended floating rate option with the fallback.
• as always, any such protocol will be completely voluntary and will amend contracts only between two adhering parties.

Fallbacks are not intended to be a primary means of moving from IBORs to RFRs. Since opening the adherence window on 23 October 2020, ISDA recommends that market participants focus on voluntary transition before the cessation of any key IBOR. Moving away from key IBORs voluntarily by amending or closing out contracts that reference those rates allows counterparties to tailor their strategies to their specific portfolios, and could allow firms to negotiate terms that avoid the adjustment mechanisms for fallbacks.

What happens next?

MUFG will monitor the list of adhering parties on the ISDA IBOR Fallbacks Protocol website (to the extent parties choose to adhere). Prior to the cessation of any key IBOR, MUFG will commence discussions with clients regarding early transition options available including the ISDA IBOR Fallbacks Protocol, to agree the most appropriate approach, taking into account specific product, transaction, timing and Master Agreement considerations.

For further information on the ISDA IBOR Fallbacks Protocol:

• please visit the ISDA website
• read the IBOR Fallbacks factsheet
• read the FAQ factsheet

If you have any questions or require further information please contact the IBOR EMEA Transition Programme at either ibor@uk.mufg.jp (MUFG Bank) or ibor@mufgsecurities.com (MUFG Securities).