Orderly Unwinding: Here to Stay?

December 17, 2014

he International Swaps and Derivatives Association (ISDA) recently issued the ISDA 2014 Resolution Stay Protocol (Protocol), which takes effect on 1 January 2015. The Protocol aims to prevent adhering parties from immediately terminating outstanding derivative contracts, and thereby gives regulators time to resolve in an orderly way transactions entered into by a bank that becomes insolvent.

The Protocol was developed in coordination with the Financial Stability Board (FSB) to strengthen systemic stability and reduce the risk associated with banks that are "too-big-to-fail".

18 major global banks (G-18) have adhered to the Protocol, which is also supported by the Board of Governors of the U.S. Federal Reserve System and the Federal Deposit Insurance Corporation. Concerns raised by the buy-side during the consultation process resulted in buy-side adherence being separated from bank adherence. The buy-side is not expected to adhere voluntarily in large numbers until further regulation is adopted in 2015.

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