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ISDA 2014 Resolution Stay Protocol stayed

On 26 August 2015, ISDA announced that the 2014 Stay Protocol is to undergo revisions. Although it remains open, it is not expected that any market participant would adhere at this time.

On the same day, in its comment to the PRA Consultation Paper on contractual stays in financial contracts governed by third-country law, ISDA identified a number of inconsistencies between the proposed rules implementing BRRD in the United Kingdom and the Protocol.

The Protocol[1] was published in November 2014, on time for the G20 Brisbane Summit, in order to support the international policy initiatives to end “too-big-to-fail”. In order to ensure an effective resolution of troubled entities, early termination rights in financial contracts might be suspended temporarily within the framework of certain resolution regimes or US insolvency proceedings.

Due to jurisdiction limitations, there is a risk that cross-border relationships would not be 100% covered. The Protocol is designed to plug that gap and ensure the cross-border efficacy of the suspension.

As the Protocol was released before most of the national legislators had time to put the final touch to the law, some discrepancies seem to appear between the wording and/or scope of the Protocol and the national laws as they are being finalised.

The Protocol is tied to the final implementation of 6 Identified Regimes and 19 Protocol-Eligible Regimes, with each one likely to be an interpretation on the same theme rather than a perfect copy.

In this context, it is possible that the language of the Protocol is being relaxed in order to provide further headroom to the upcoming legislation, but at the same time introducing new unanswered questions as to the ultimate effect of the Protocol.

[1] Discussed in detail here: A colossus with feet of clay: the 2014 Resolution Stay Protocol

[Update: pursuant to Section 1(b) of the ISDA 2014 Resolution Stay Protocol, ISDA designated a Cut-off Date of November 2, 2015.]

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