An insight into the upcoming ISDA 2021 Interest Rates Definitions
ISDA has published many definitions over the years, some of them are aseet-class specific, while apply to specific processes for all asset-classes. The following are some of the asset-specific common definitions.
| Asset Class / Process |
Definitions |
| Rates |
2006 ISDA Rates Definitions |
| 2000 ISDA Rates Definitions |
| Credit |
2014 ISDA Credit Derivatives Definitions |
| 2003 ISDA Credit Derivatives Definitions |
| Equity |
2011 ISDA Equity Derivatives Definitions |
| 2002 ISDA Equity Derivatives Definitions |
| FX |
1998 FX and Currency Options Derivatives |
| Commodity |
2005 ISDA Commodity Definitions |
| Novation |
2004 Definitions |
The 2006 ISDA Rates Definitions set has been amended almost 70 times since its publication via various supplements. In the last 14 years, many changes (both large and small) have occured in the market place. ISDA responded to these changes through various suplements but this itself created issues because market participants have to refer not only to original definition set but also all of its supplements. This is cumbersome, time consuming and prone to errors. Therefore, ISDA has decided to replace these definitions with a new definition set named "2021 ISDA Interest Rate Derivatives Definitions".
ISDA has planned to make available these definitions via web-versioning platform, which will enable the market participants to access everything electronically, instead of printed materials or pdf formats. This also means that all updates will be released electronically and the supplement methods of updation will probably cease. The latest version of the definitions will include the contents of the old version and the updates. This way, market participants will have to refer only to the latest version.
ISDA is releasing these definitions keeping in mind its focus on the Common Domain Model (which has been discussed in an earlier article). The following are some of the important changes.
- Formulas will be used instead of legal narrative to describe mathematical terms for easy processing by machines.
- The mechanics of the definitions will be available via open-source code and aligned to ISDA CDM so that the definitions flow automatically from front-office to middle-office and back-office
- There have been changes in the way certain provisions such as optional early termination and mandatory early termination are used in the market. The new definitions will incorporate these changes.
- The current market preference is to have a single price-source for each of the interest rate benchmarks. The new definitions will incorporate these changes by referencing IBORs (Interbank offered rates), and robust fall-back provisions.
- Changes in provisions related to role of Calculation Agent / Dispute Resolution<
- Changes to terms relating to Business Days, Payment Dates and Period End Dates
- Changes in terms relating to floating rate amounts and interpolation
- Changes in terms related to Unscheduled Holiday, Hong Kong Typhoon and Black Rainstorm Days and potential Deliverable Currency FX provisions
- Possible changes in terms describing Deliverable Currency Disruption Events provisions and its publication timing
- Possible changes to Floating Rate Option Matrix and proposed naming convention
- Possible changes to introduce generic temporary and permanent cessation fallbacks for benchmarks not covered by the IBOR Fallback settlement; and
- Many other small changes
These definitions are expected to be published by May 17, 2021 and their adoption by June 21, 2021.
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