NEED FOR LEGISLATIVE INTERFERENCE FOR LIBOR TRANSITION IN INDIA: LESSONS FROM NY, UK AND EU
Keywords:
LEGISLATIVE, INTERFERENCEAbstract
The London Interbank Offered Rate (LIBOR) will cease to operate as the primary benchmark rate for financial instruments by the end of 2021. In light of this massive transition and challenges associated with it, Reserve Bank of India has taken steps to explore, develop and assist in adoption of an alternative risk-free reference rate. However, from a legal standpoint, the challenge of amending the financial instruments referring to LIBIOR is left uncharted in Indian markets. Large number of financial agreements referring to LIBOR will continue to survive the cessation of the LIBOR and fresh agreements having exposure to LIBOR are still being entered into. Given the scale of the task involved and the time period being relatively short, timely amendments cannot be excepted out of all the financial instruments with LIBOR exposure. This article identifies the ill-preparedness of Indian financial market and warrants the need for India to provide for a legislative fix to deal with issues arising out of LIBOR contracts without or with inadequate fall-back provisions, categorised as ‘Legacy Contracts’. In absence of legislative interference, the result could be a large volume of cases involving a large volume of transactions and substantial financial market disruption, burdening the state resources. This piece draws inspiration from legislative solutions from various jurisdictions like the United Kingdom, the European Union and the State of New York in order to recommend legal measures to be adopted in India. This would ensure smooth move towards alternative risk-free rates without increasing litigations or creating market disruption.
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