ISDA releases new standard definitional booklet for interest rate derivatives

The International Swaps and Derivatives Association (ISDA) has issued a new standard definitional booklet for interest rate derivatives.

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The 2021 ISDA Interest Rate Derivatives Definitions is designed to ensure ISDA’s documentation keeps pace with changes in market practice, regulation, and technology. This represents the first major overhaul of the definitional booklet since 2006, and is the first to be published in purely digital form.

The new definitions consolidate the nearly 90 supplements to the 2006 ISDA Definitions into a single electronic booklet. Going forward, ISDA will republish a revised digital version of the 2021 Definitions in full each time updates are required, eliminating the need for further PDF or paper supplements.

Several important updates and enhancements are included in the 2021 Definitions, such as the ability to easily compare and highlight changes between different versions of the 2021 Definitions via ISDA’s new electronic documentation platform, MyLibrary. Also, the methodology used to determine a cash settlement amount for swaptions and trades subject to early termination has been replaced to align with current collateral and valuation practices.

In addition, the naming conventions for floating rate options have been amended to make them more standardized, with the publication source removed as a defining characteristic to help streamline the definitions. Among other changes, certain payment and calculation provisions have been revised to make the definitions more robust in the face of market closures. Further, a new fallback trigger has been introduced that would take effect if a party is prohibited from using a benchmark to perform its obligations.

“The 2006 ISDA Definitions have played a pivotal role in the interest rate derivatives markets for the past 15 years but wading through a definitional booklet plus 586 pages of amendments via nearly 90 supplements is no longer sustainable. The new 2021 ISDA Interest Rate Derivatives Definitions brings the interest derivatives market up to date and into the digital age, enabling firms to easily access and navigate a consolidated set of definitions in electronic form,” Scott O’Malia, ISDA’s chief executive, said.

Most major central counterparties have announced they will reflect the 2021 Definitions in their rules.