On July 13, 2015, ISDA published a classification letter that will enable counterparties to notify each other of their status for clearing and other regulatory requirements under Regulation (EU) No 648/2012 on OTC derivatives, central counterparties and repositories (EMIR) (Classification Letter).
EMIR imposes a number of regulatory obligations on counterparties in the derivatives market. The application of the EMIR requirements depends on how counterparties are classified. The Classification Letter has been prepared as a bilateral version of the classification tools that currently exist on ISDA Amend and is intended to facilitate compliance with EMIR by allowing counterparties to communicate their status by answering a series of questions. ISDA has published an explanatory memorandum to accompany the Classification Letter.
The clearing categorization in the Classification Letter covers interest rate derivatives only. It is anticipated that the Classification Letter will be expanded in the future to cover other classes of products that may become subject to the clearing obligation.
On June 12, 2015, ISDA published its EMIR Frontloading Additional Termination Event Amendment Agreement and an accompanying explanatory memorandum. The amendment agreement allows parties to an ISDA Master Agreement to amend the agreement to incorporate a new additional termination event covering frontloading.
Frontloading refers to the requirement for certain derivative transactions to be cleared in accordance with the clearing obligation under EMIR where the transactions are entered into during a given period before the clearing obligation takes effect. According to ISDA, in such cases, if clearing is not possible by the time the clearing obligation takes effect, the only way the parties can avoid breach of the frontloading requirement (or stop a breach that has occurred from continuing) is to terminate the problem contract. The amendment agreement provides the required termination right, thereby reducing the risk of regulatory breach faced by market participants subject to frontloading.
On October 11, the Board of Governors of the Federal Reserve System and the FDIC applauded the International Swaps and Derivatives Association (ISDA) for the agreement of a new resolution stay protocol. The resolution stay amendments of the protocol are intended to facilitate an orderly resolution of a major global banking firm and reduce the potential negative impact of the resolution on financial stability by giving the bankruptcy court or resolution authority the ability to prevent early termination of financial contracts of the firm’s global subsidiaries. Release.
The FCA has published a speech made at a conference held by ISDA in London by the Chief Executive of the FCA, Martin Wheatley, on reform of the international derivatives market.
The speech focused on the “final delivery stage” of reforms in this area. Martin Wheatley commented that the details on which regulators are currently focusing “happen to be some of the most important facing the derivatives industry.”
The key issues under consideration were the extent to which financial regulators exert influence across international markets, the issue of the broader recognition of equivalence between international regimes, the collateralization of bilateral derivatives, EMIR implementation and benchmarking. Speech.
On August 29, the Futures Industry Association (FIA) and ISDA announced publication of the FIA-ISDA Cleared Derivatives Addendum, a template that can be used by U.S. futures commission merchants (FCMs) and their customers to document their relationship with respect to cleared OTC swaps. The Addendum supplements a futures and options agreement between a U.S. FCM and its customer, includes party representations as to certain clearing-related matters, close-out methodologies for cleared OTC swaps, triggers for liquidation, valuation provisions for terminated trades, and provisions governing tax issues. ISDA Release. FIA Release.
On July 11, ISDA announced the publication of the 2011 ISDA Equity Derivatives Definitions in an effort to increase standardization and automation and further reduce risk across over-the-counter derivatives markets. ISDA Release.
On May 23, ISDA published a discussion paper on the purposes, function and issues associated with central clearing of over-the-counter (OTC) derivatives. ISDA Release.
On April 5, ISDA announced a market practice statement on short sale price limitations triggered under Regulation SHO Rule 201 for U.S. share and index variance swaps. ISDA Statement.
On March 25, ISDA issued a request for proposals to establish a Commodity OTC Derivatives Trade Repository that would: (i) meet all current and future regulations governing repositories and (ii) provide a structure to rapidly report and provide timely access to information to applicable regulators. Proposals from interested providers must be submitted by April 25. ISDA Release.
On December 21, ISDA announced that it sought and was granted permission to intervene in the Lehman Brothers International Europe case in order to ensure that the arguments reflecting the market’s interpretation of Section 2(a)(iii) of the ISDA Master Agreement were made before the court. The court agreed with ISDA that Section 2(a)(iii) is “suspensive” in effect. ISDA Release.