The Indian Banks Association (IBA) on March 12, 2024, issued an update on the Libor Transition.
The following has been stated:
• Work Stream set up by Indian Banks Association (IBA) had recommended the development of Modified MIFOR, which may be used by the market participants in new transactions/ contracts upon the cessation of MIFOR which ceased to exist after 30thJune, 2023. FBIL Modified MIFOR Curve is computed using the Adjusted SOFR rate and the FBIL Forward Premia rate.
• There will be certain coupons settlement dates for the Modified MIFOR for which settlement amounts would be known only on the date of settlement. This delay may arise due to various reasons such as delay in the publishing of Secured Overnight Financing Rate(“SOFR”), which is one of the inputs required to arrive at the Modified MIFOR. This may result into payment delays/defaults.
• The issue was deliberated by the IBA working group at the initial stages of development of Modified MIFOR as a substitute for MIFOR, but the members agreed to manage the situation.
• In order to evolve market consensus, a survey was done and feedback was taken from all MIFOR Trading banks in August, 2022. In the survey 16 out of 21 banks that responded to our survey favoured delay of all coupon payments by 2 business days, for Modified MIFOR Trades.
• The matter was further deliberated in the IBA Workstream and a few members suggested to seek legal opinion from Juris Corp –the Indian Legal Counsel of International Swaps and Derivatives Association (ISDA) regarding the above change in methodology for coupon payments. Accordingly, we approached Juris Corp for legal opinion. The legal opinion received from Juris Corp indicated that there “will be no breach of any existing laws in India regulating derivative transactions involving coupon payments and none of the provisions of the 2002 ISDA Master Agreement (“Master Agreement”) or the 2021 ISDA Interest Rate Derivatives Definitions (“2021 ISDA Definitions”), on introduction of a 2 (two) business day payment delay in coupons”.
• After obtaining legal opinion, the work stream deliberated on the suitable Multilateral Amendment Agreement (MAA) that could be adopted by participants for the contemplated delay of 2 (two) business days to cater to the legacy transactions undertaken prior to transition to new market convention.
• For the execution of the MAA also, services of the Juris Corp will be availed by us. At our meeting held on January 16, 2024, it was decided that Juris Corp will share a detailed note on the execution of MAA by all MIFOR Trading Banks.
• Juris Corp will approach for execution of MAA very shortly to all those banks that are undertaking Modified MIFOR Trade.
[Notification No. DRS/IBA/0883/2024]
