15 November 2015

ICMA announces publication of 2015 Universal Resolution Stay Protocol with Securities Financing Transaction Annex

The SFT Annex will assist market participants who use certain securities financing master agreements sponsored by the trade associations in complying with relevant bank resolution laws and regulation requiring the recognition of bank resolution stays in certain cross border contractual arrangements. The Annex allows adhering parties to recognise existing and forthcoming special resolution regimes which provide for temporary stays on early termination rights in the event that a bank enters into resolution. These stays are intended to give regulators time to facilitate an orderly resolution of a troubled bank.

Statutory resolution regimes have been implemented in several jurisdictions, including the US and European Union. These regimes provide resolution authorities with broad tools and powers to effect a resolution, including the imposition of a temporary stay on counterparties’ early termination rights in the event a bank enters into resolution. However, it is uncertain whether these stays would extend to contracts governed by foreign law. By adhering to the Protocol, firms are opting to abide by certain overseas national resolution regimes, ensuring cross-border trades with counterparties in those jurisdictions are subject to the stays.

 Regulators are in the process of developing new regulations in their jurisdictions that will promote broader adoption of the stay provisions beyond the G-SIBs and other banks. Those regulations will be made under the rule-making process in each jurisdiction. In addition, a separate Protocol is being developed for other market participants, including buy-side and end-user firms and other banks, providing them with a tool to comply with forthcoming regulations requiring the inclusion of stays within financial contracts. The separate Protocol will be published next year for those firms that choose to use it. Regulations requiring financial contracts to incorporate contractual stays are expected to be implemented in several jurisdictions from early 2016.

The protocol

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