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ISDA Readies “2013 Collateral Agreement Negative Interest Protocol”

ISDA is currently drafting a protocol designed to allow market participants to amend the terms of bilateral (not unilateral) credit support documentation to account for negative interest amounts on cash collateral.  The protocol will exclude those collateral agreements which already:

  • specify an alternative to the payment of an “Interest Amount”;
  • detail arrangements for interest to be retained or invested by a third party custodian;
  • deal with negative interest rate issues;
  • specify that no interest will be payable; or
  • specify that interest will be set by reference to a spread over a defined rate.

The protocol will specify that, if an interest amount for an interest period is negative, any protocol adherent which is a pledger of cash collateral will also be obliged to pay the absolute value of that interest amount to the other party for that interest period.

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