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ISDA Publishes 2013 Discontinued Rates Maturities Protocol

On 11 October 2013, ISDA published the “ISDA 2013 Discontinued Rates Maturities Protocol” (the “DRM Protocol”), a protocol which amends confirmations relating to “Protocol Covered Transactions”.

It’s truly amazing how so many words can be used to convey so simple a message.  The effect of the amendment is that, in the absence of an agreed provision[1] which details a fallback method for determining the relevant discontinued rate[2] (an “Overriding Fallback Provision”), any discontinued rate(s) with respect to Protocol Covered Transactions are to be calculated by interpolating the “Nearest Long Rate” and the “Nearest Short Rate” using any method of interpolation detailed within the relevant confirmation, and if no interpolation method is specified, linear interpolation (the “Interpolated Rate”).

A “Protocol Covered Transaction” is any transaction:

  • which is determined by reference to at least one rate which has been permanently discontinued by its provider, but in relation to which the provider still publishes the rate with respect to at least one shorter dated designated maturity and one longer dated designated (a “Discontinued Maturity Rate”); and
  • in relation to which the date on which the Discontinuation Maturity Rate ceases to be provided (the “Discontinuation Date”) occurs on or after the date on which the DRM Protocol became effective with respect to the underlying transaction (the “Amendment Effective Date”); and
  • in relation to which the relevant confirmation details a date for the Discontinued Maturity Rate to be set (a “Fixing Date”) which occurs on or after the Amendment Effective Date; and
  • in relation to which a “Nearest Long Rate” and a Nearest Short Date” both exist; and
  • which is not a transaction which the parties have agreed is to be excluded from the terms of the DRM Protocol (a “Party Agreed Excluded Transaction”).

“Nearest Long Rate” and “Nearest Short Rate” refer to designated maturities for rates which are to be used in substitution for those which have been discontinued, and mean:

  • if the rate which has been discontinued is not itself an interpolated rate:
    • the next longer (shorter) rate in terms of designated maturity with respect to such discontinued rate; and
  • if the rate which has been discontinued is an interpolated rate (having been discontinued because one of the rates used in the interpolation process has been discontinued):
    • the period of time for which the relevant rate is available which is next longer (shorter) than the number of days within a compounding period for the affected interpolated rate (the “Affected Interpolated Rate Period”).

[1] Whether documented in a confirmation, protocol or bilateral amendment

[2] However, fallback methods which require the parties to seek rates provided by Reference Banks (“Reference Bank Fallback Provisions”) are not to be considered and a separate methodology applies to transactions which reference certain Singapore Dollar rates

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