ISDA Guidance on Bloomberg Fallback Rates
Fallbacks seem like a simple replacement rate, but it's not so simple after all. This ISDA guidance gives some of the clearest language to date on the "gotchas" of IBOR Fallbacks.
The ISDA LIBOR Fallback rate, which is intended as a replacement to LIBOR for contracts where both parties have mutually adhered to the ISDA Fallback Protocol, has a number of nuances that ISDA sought to clarify in its guidance:
- There is a backward shift/observational shift and this dynamically increases as needed to ensure the fallback can be calculated two days prior to payment date
- Differences in LIBOR jurisdictions will have different publication schedules that impact when the fallback will be available
- If the fallback can't be calculated two days prior to payment date, you should use the fallback published for the most recent fixing date
- While you can follow this methodology to calculate the fallback rate independently, the fallback rates published by Bloomberg (BISL) are binding
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