The NWG Steering Committee has adopted a Recommendation on applying a fallback rate for the WIBOR benchmark in interest rate derivatives

Following a consultation in May 2023 on a proposed „Recommendation regarding the application of a fallback rate for the WIBOR benchmark in interest rate derivatives“, the National Working Group for benchmark reform (NWG) has now published the final recommendation along with a corresponding consultation conclusion document which is further discussed in EventID 22054.
#### Background
The Working Group conducted the public consultation with the aim to develop recommendations regarding the replacement of the Warsaw Interbank Offered Rate (WIBOR) benchmark with an alternative benchmark, preferably the Warsaw Interest Rate Overnight (WIRON) index, in WIBOR-based interest rate derivatives in the event that a permanent fallback rate is triggered (e.g. in case of the WIBOR wind-down).
The NWG back then recommended:
– the use of WIRON as the alternative reference rate (the fallback rate);
– 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
– 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 noted in this context that institutions and counterparties to derivative transactions would NOT be obliged to apply the recommendations, as they only serve as „recommendations“ and offer a robust solution for financial market participants in deriving an adequate fallback rate for WIBOR denominated contracts.
#### Final Recommendation
The NWG decided to implement the draft as proposed without any changes.