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ISDA announced the ISDA 2014 Resolution Stay Protocol is open for adherence. The Protocol will come into effect on January 1, 2015 for those 18 banks. Adherence is voluntary, but regulators have committed to develop new regulations in their jurisdictions throughout 2015 that will encourage further adoption of stay provisions. A US bankruptcy component of the Protocol will come into effect once relevant rules have been issued by US regulators. In each case, the regulations will be made under the rule-making process in each jurisdiction.
The Protocol opts adhering parties into certain existing and forthcoming special resolution regimes, subject to creditor protection safeguards. The aim is to ensure cross-border derivatives trades are captured by statutory stays on cross-default and early termination rights in the event a bank counterparty enters into resolution. These stays are intended to give regulators time to facilitate an orderly resolution of a troubled bank.
The Protocol also incorporates certain restrictions on creditor contractual rights that would apply when a US financial holding company becomes subject to US bankruptcy proceedings. This includes a stay on cross-default rights that would restrict the counterparty of a non-bankrupt affiliate of an insolvent US financial holding company from immediately terminating its derivatives contracts with that affiliate. A non-defaulting party’s right to terminate derivatives trades with a direct counterparty that is under insolvency proceedings is unaffected by the Protocol.