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Tops in Swaps Summer Recap
Practical Law Legal Update 0-580-0265 (Approx. 4 pages)
Tops in Swaps Summer Recap
by Practical Law Finance
| Published on 04 Sep 2014 • USA (National/Federal) |
In recent months, Practical Law Finance has continued to provide comprehensive coverage of all of the key legal developments in OTC derivatives. This summary features some of our most popular and noteworthy late summer swaps Updates, including details on adherence to the 2014 ISDA Credit Derivatives Definitions, which become effective September 22, 2014, as well as the newly proposed uncleared-swap margin collateral rules for banks released this week.
In recent months, Practical Law Finance has continued to provide comprehensive coverage of all of the key legal developments in OTC derivatives. This summary features some of our most popular Updates on the summer's most important developments in swaps and derivatives:
- Re-proposed margin collateral rules for uncleared bank swaps (see Legal Update, Regulators Re-propose Uncleared-Swaps Margin Rules for Banks).
- The 2014 ISDA Credit Derivatives Definitions and related protocol for adherence (see ISDA Publishes Protocol for 2014 Credit Derivatives Definitions).
- An initiative by US bank regulators to eliminate early termination rights in bank swaps (see Early Termination Rights May Be Eliminated in Swaps with Largest US Banks).
- Removal of US guarantees of non-US swaps to avoid the application of Dodd-Frank swaps rules to those swaps (see Is It Safe to "De-guaranty" Cross-border Swaps to Avoid Dodd-Frank?).
- Adoption by the SEC of Dodd-Frank rules on cross-border security-based swaps (SBS) (see SEC Adopts Cross-border Security-based Swaps Rules).
- Publication by ISDA of an optional amendment to controversial Section 2(a)(iii) of the ISDA Master Agreement (see ISDA Publishes Optional Amendment to Controversial Section 2(a)(iii) of ISDA Master Agreement).
Regulators Re-propose Uncleared-Swaps Margin Rules for Banks
On September 3, 2014, federal bank regulators re-proposed rules under Title VII of the Dodd-Frank Act on minimum requirements for the exchange of initial margin and variation margin collateral between banks and their counterparties in connection with non-cleared swaps and non-cleared security based swaps (SBS) between them.
For more information, see Legal Update, Regulators Re-propose Uncleared-Swaps Margin Rules for Banks.
For details on other Dodd-Frank-related swap margin collateral rulemaking, see Practice Note, The Dodd-Frank Act: Derivatives Margin Collateral Rules.
ISDA Publishes Protocol for 2014 Credit Derivatives Definitions
On August 21, 2014, ISDA published a protocol for the 2014 ISDA Credit Derivatives Definitions (2014 CDDs), as well as a guide on how to adhere to the protocol. The protocol enables market participants to apply the 2014 CDDs to existing credit derivative transactions. The initial protocol adherence period ends on September 12, 2014. The 2014 CDDs take effect September 22, 2014.
For further information on the protocol, see Legal Update, ISDA Publishes Protocol for 2014 Credit Derivatives Definitions.
For a detailed summary of the 2014 CDDs, see Practice Note, Introduction to the 2014 ISDA Credit Derivatives Definitions.
Early Termination Rights May Be Eliminated in Swaps with Largest US Banks
US bank regulators may require the largest financial institutions in the US to amend their derivatives contracts to eliminate so-called early termination rights for their counterparties under those contracts as part of an initiative to eliminate too big to fail. The requirement could drastically change a basic premise upon which most OTC derivatives contracts operate in the US.
For details on this issue, see Legal Update, Early Termination Rights May Be Eliminated in Swaps with Largest US Banks.
For an explanation of early termination under swap agreements, see Practice Note, The ISDA Master Agreement: Early Termination.
Is It Safe to "De-guaranty" Cross-border Swaps to Avoid Dodd-Frank?
Some US market participants have begun to remove cross-border swap guarantees in an effort to avoid the application of Dodd-Frank Title VII rules to those swaps. However, regulators and lawmakers have been sending mixed messages on "de-guarantying," creating market uncertainty on the issue.
For further information on this issue, see Legal Update, Is It Safe to "De-guaranty" Cross-border Swaps to Avoid Dodd-Frank?
For details on the Dodd-Frank Act's cross-border swaps rules, see Practice Note, The Dodd-Frank Act: Cross-border Application of Swaps Rules.
SEC Adopts Cross-border Security-based Swaps Rules
On June 25, 2014, the SEC adopted the first of a series of rules and guidance on the application of Dodd-Frank swaps rules to cross-border security-based swaps (SBS).
For details on the rules, see Legal Update, SEC Adopts Cross-border Security-based Swaps Rules.
For further information on the Dodd-Frank Act's cross-border swaps rules, see Practice Note, The Dodd-Frank Act: Cross-border Application of Swaps Rules.
ISDA Publishes Optional Amendment to Controversial Section 2(a)(iii) of ISDA Master Agreement
ISDA has published an amendment to Section 2(a)(iii) of the ISDA Master Agreement, designed to address the open-ended payment-withholding option during the continuation of a counterparty default under that section. This issue was heavily litigated in both the US and the UK in the wake of the financial crisis. The amendment gives parties the opportunity to integrate a time limit on this provision into their ISDA Master Agreements.
For details on the amendment and related issues, see Legal Update, ISDA Publishes Optional Amendment to Controversial Section 2(a)(iii) of ISDA Master Agreement.
For details on this ISDA Master Agreement and other ISDA swap documentation, see Practice Note, ISDA Documents: Overview (US).