An ISDA agreement is a legal contract that sets out the terms of a financial derivative transaction between two parties. The International Swaps and Derivatives Association (ISDA) created this agreement as a standardized form to be used in the over-the-counter derivatives market.

One of the key components of an ISDA agreement is the interest rate benchmark used to calculate the financial derivative`s value. For many years, this benchmark was the London Interbank Offered Rate (LIBOR), which was used as the global benchmark for interest rates.

However, due to the LIBOR scandal, where banks were found to have manipulated LIBOR rates for their own benefit, LIBOR is being phased out as a benchmark. It will be replaced by a new benchmark, the Secured Overnight Financing Rate (SOFR), by the end of 2021.

This has significant implications for ISDA agreements that use LIBOR as the benchmark interest rate. Parties to these agreements will need to amend their contracts to replace LIBOR with SOFR.

ISDA has provided a protocol for amending ISDA agreements to remove LIBOR references and replace them with the new benchmark. The protocol provides a standardized way for market participants to amend their ISDA agreements without having to renegotiate the entire agreement.

It is important for market participants to act promptly to amend their ISDA agreements, as the transition away from LIBOR is a massive undertaking that will require significant planning and coordination. Failing to amend ISDA agreements could result in financial losses, legal disputes, and reputational damage.

In conclusion, ISDA agreements are essential legal contracts in the global derivatives market, and the phase-out of LIBOR as a benchmark interest rate has significant implications for these agreements. Market participants must act quickly to amend their contracts to replace LIBOR with the new benchmark, SOFR, to avoid financial and legal risks.