BRISCHETTO We have previously announced that once the ISDA [International Swaps and Derivatives Association] benchmark fallback provisions are published – which is expected to be very soon – new FRNs referencing BBSW must include the ISDA fallback language in order to be repo eligible. All users of BBSW are expected to adopt fallback provisions where possible.

The RBA is considering how to implement this change, including finalising the scope and timing for compliance with the new repo-eligibility rules. This involves weighing up the costs and benefits involved.

To be clear, we are waiting for the ISDA fallbacks to be published and nothing is happening ahead of this. We appreciate it will not be straightforward to apply these fallbacks to different non-derivative contracts.

BBSW does not have the same imminent end date as LIBOR so we are also not talking about the same risks. It remains the case, though, that while BBSW is robust now things could change in the future. Fallbacks are critical to this contingency. If there is one thing the LIBOR experience tells us it is that nothing can be guaranteed forever.

To help us determine what makes sense for implementing BBSW fallbacks in the repo-eligibility context we will be conducting industry consultation in the next couple of months. This will be informal, through conversations with market participants, and will be coordinated through AFMA [the Australian Financial Markets Association] and the ASF [Australian Securitisation Forum].

The sorts of questions we will look at include how long it would reasonably take to incorporate fallback language into new securities and how long it will take to be in a position to support this operationally.

Another question is how this will align, or compete, with institutions being ready for the demise of LIBOR at the end of 2021. We do not want to compromise this work but, at the same time, if there are synergies we should take advantage of them.

We also want to understand any constraints or hurdles institutions may face in incorporating the ISDA fallbacks in new securities and whether there are sector-specific challenges we should be aware of.

Other jurisdictions have taken the ISDA fallback provisions for derivative contracts and applied the concepts outside the boundaries of the derivatives sector – one example is the ARRC [alternative reference rate committee] in the US, which has set out language for securitisation and FRN issuance in the cash market.

However, we understand it will not always be simple. We want to understand the challenges and be aware of them when we set requirements. We are conscious that there are additional challenges to incorporating the fallbacks in existing securities and we want to make sure we understand these, too, when weighing up the costs and benefits.

BRISCHETTO We need to be flexible in the post-COVID-19 world and it depends on the timing of the publication of the ISDA fallback supplement and protocol. This is expected soon so we hope to be able to complete the consultation process over the remainder of 2020.

If this is the case, by the end of this year or early next we will announce the new repo-eligibility requirements and when they will take effect. These will be rules to follow if issuers want their securities to be eligible for use as collateral in the reserve bank’s market operations.

There may be distinctions between existing and new securities. We will weigh the costs and benefits sensibly and take a reasonable approach.