DOJ Antitrust Unit OKs ISDA Protocol

The International Swaps and Derivatives Association’s LIBOR fallback protocol has moved one step closer to publication after the US Department of Justice confirmed on October 1 that it sees no immediate competition issues with the process, reported Law360.

The department has concluded, based on the representations in ISDA’s letter request, including its description of certain safeguards, that ISDA’s proposed amendments to its standardized documentation are unlikely to harm competition. Therefore, the department does not presently intend to challenge ISDA’s proposed amendments to its standardized documentation for derivatives.

“ISDA’s process, including its cooperation with government regulators and its consultation-driven process for obtaining feedback from industry participants, has had the effect of clarifying the practical issues involved in planning for when LIBOR and other IBORs are no longer available and preparing for a smooth transition away from IBORs to other reference rates,” said Assistant Attorney General Makan Delrahim. “ISDA has put in place safeguards to avoid harm to competition, such as making the selection of the fallback rates voluntary, which allows contracting parties the flexibility to designate alternative competitive rates they may think are more appropriate.”

According to the Department’s business review letter, ISDA’s model documents are widely used by financial institutions to engage in swaps, forwards, and other types of derivatives contracts such as interest rate and credit default swaps. These derivatives contracts incorporate various interbank offered rates (IBORS), including the London Inter-Bank Offered Rate (LIBOR).  Derivatives allow financial institutions to hedge risks they incur when lending or borrowing money.

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