2021 ISDA Interest Rate Derivatives Definitions: key changes

26 October 2021

In this article we summarise the key changes to the ISDA Interest Rate Derivatives Definitions and explain next steps for market participants.

What are the 2021 ISDA Interest Rate Derivatives Definitions?

The 2021 ISDA Interest Rate Derivatives Definitions (the 2021 Definitions) were published in June 2021 with the intention that they be implemented as the market standard definitional book from 4 October 2021, replacing the 2006 ISDA Definitions (the 2006 Definitions).

Do I need to do anything?

As there will be no ISDA protocol to transition legacy swaps documented under the 2006 Definitions to the 2021 Definitions, there is a risk of economic differences arising between swaps documented under the different sets of definitions (although in practice not all changes are expected to provide for an economic difference) but this should lessen over time as older 2006 Definitions trades mature and are replaced by new trades documented under the 2021 Definitions. As not all market participants will be in a position to adopt the 2021 Definitions immediately, the 2006 Definitions may continue to be used for some time – however ISDA does not intend to continue to maintain or update the 2006 Definitions1 from now on and they are likely to become out-of-date reasonably quickly. It is worth noting that as of 4 October 2021, all but one of the major central counterparties (CCPs) had amended their rules books to reflect the 2021 Definitions with the remaining CCP expected to follow suit later this year. On this basis, it may make sense for market participants to whom alignment between cleared and non-cleared trades is important to actively seek transition.

How are the 2021 Definitions different to the 2006 Definitions?

A key aspect of the 2021 Definitions is that they will be published in a purely digital format via ISDA’s new web-based user interface, MyLibrary. One of the issues with the 2006 Definitions is that they have become unwieldy due to the large number of supplements that have been published (over 80) since their original publication. Future amendments will be made to the 2021 Definitions as and when required and made directly to the text rather than by way of supplement. Each time an amendment or addition is made, a new digital version will be published. Indeed, version 2 of the 2021 Definitions has already been published on 30 September. The platform highlights changes between versions so it will still be possible to have a consolidated view of how the 2021 Definitions have evolved over time.

What are the key changes introduced by the 2021 Definitions?

The key changes for most people relate to the role of the Calculation Agent as well as the various Cash Settlement Methods referenced by the 2021 Definitions. The Calculation Agent must now use commercially reasonable procedures to produce a commercially reasonable result (i.e. replicating close-out mechanics included in the standard-form 2002 ISDA Master Agreement). Parties also now have a right to request a statement setting out the Calculation Agent’s determinations in reasonable details including any market data relied on as well as additional rights to challenge any determination by submitting their own market data. ISDA have also substantially updated the provisions governing Cash Settlement Methods for use with swaptions and early terminated swaps by reducing the amount of subjective input required from the Calculation Agent in respect of key economic inputs.

Such changes are of particular interest to the buyside and other corporate end users, as their effect is generally to increase the objectivity standard of determinations and valuations made by the Calculation Agent as well as providing for increased transparency. There is also a general theme of simplification of the definitions used in the 2006 Definitions and the provision of a more consistent approach for describing different rates, options or fallback mechanics.

How are the 2021 Definitions structured?

The operative provisions and bulk of the definitions are set out in the main book. As was the case with the 2006 Definitions, certain default elections and definitions have been set out in separate matrices: Floating Rate Matrix, Settlement Matrix, Currency/Business Day Matrix, Mark-to-Market Matrix and Compounding/Averaging Matrix. These will be published and versioned separately to the main book.

Summary of key changes

See our summary of the key changes in the 2021 Definitions. Terms not defined have the meanings given to them in the 2021 Definitions and any references to sections are to sections of the 2021 Definitions.


1 Note that ISDA have confirmed that an existing pipeline of Supplements for the 2006 Definitions will be published after 4 October 2021 but ISDA does not intend to initiate new amendments once these have been published.