There are multiple ways for counterparties to implement the benchmark reforms to transition away from interbank offered rates (“IBORs”) and other key interest rates such as SOR. Depending on the changes made to the affected derivatives contracts, the changes may or may not be reportable under the SF(RDC)R.
Where a derivatives contract is amended to include fallback provisions such as a reference to fallback rates (e.g. via adherence to the ISDA 2020 IBOR Fallbacks Protocol), such a change is not reportable under the SF(RDC)R.
However, where the contractual terms being amended are data fields that are required to be reported under the SF(RDC)R, the changes are to be reported within 2 business days from the amendment. For example, where (i) counterparties agree to amend the derivatives contract to replace the original reference rate with another reference rate (e.g. from USD LIBOR to SOFR, from SOR to SORA), or (ii) a fallback provision is triggered such that the original reference rate is replaced with the fallback rate6, such a change is required to be reported. There are no specific formatting requirements when reporting the change of the reference rate and reporting entities may continue to report the reference rate as per their current practice. Further, if there are also changes to other contractual terms (e.g. payment frequency, data count), whether due to (i), (ii) or other reasons, such changes are also reportable.
Instead of amending contractual terms to implement the benchmark transition, counterparties may also terminate an affected derivatives contract and enter into a new derivatives contract. Terminating a previously reported derivatives contract and entering into a new derivatives contract are both subject to reporting requirements under the SF(RDC)R.
6 Where the fallback provisions of a derivatives contract have been triggered, this would impact the economics of the contract. Thus, reporting entities are to report the change and update the relevant data fields.
References:
- Regulation 7 of the SF(RDC)R
- First Schedule to the SF(RDC)R