Linklaters has advised The International Swaps and Derivatives Association, Inc. (ISDA) on Version 2 of the ISDA Collateral Agreement Interest Rate Definitions and three forms of amendment agreements. These documents will enable market participants to update their collateral agreements to include ‘SOFR’ and ‘EuroSTR’ as the interest rates applicable for USD and EUR denominated cash collateral in collateral agreements for non-cleared derivatives.
These amendments will be required as part of the ARRC’s desire for inter-dealer Credit Support Annexes to refer to SOFR by the end of 2020 as well as the anticipated permanent cessation of EONIA on 3 January 2022.
Central clearing houses last month transitioned price alignment interest rates to EuroSTR and in October will transition rates to SOFR. These documents will allow market participants to adopt the same approach for their uncleared portfolio.
Deepak Sitlani, UK Head of Derivatives and Structured Products at Linklaters said:
“These documents introduce standardised risk free rate definitions for nine currencies, and, notably, will enable market participants to transition their collateral agreements to SOFR and EuroSTR in a standardised way. The forms of amendment agreement will also shortly be available to negotiate through ISDA Create, ISDA’s online negotiation platform, which will streamline the negotiation process.”
The documents were developed by an ISDA working group that includes dealers, asset managers, institutional investors, funds and end users.
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