Public consultation on the NWG’s recommendation on interest rate derivatives

In view of the transition from the (use of) WIBOR, the Warsaw Interbank Offered Rate, to the Warsaw Interest Rate Overnight index WIRON, the National Working Group for the benchmark reform (NWG) has now come up with and seeks feedback on draft recommendations for an adequate fallback rate for the WIBOR benchmark in interest rate derivatives in case a fallback rate is triggered. Specifically, in its recommendations, the NWG recommends
1. the use of WIRON as the alternative reference rate (the fallback rate);
2. the use of a WIRON term structure that is essentially the same as the WIBOR tenor, including an appropriate value for the spread adjustment as defined in the ISDA protocol; and
3. the use of a compound interest rate for the appropriate interest period based on WIRON values and adjusted with an appropriate spread where a WIRON rate as noted under (2) cannot be applied.
The NWG notes in this context that institutions and counterparties to derivative transactions are NOT obliged to apply the draft recommendations once finalized. The recommendations only serve as such and offer a robust solution for financial market participants in deriving an adequate fallback rate for WIBOR denominated contracts.