On November 12, 2015, ISDA® announced the launch of the ISDA 2015 Universal Resolution Stay Protocol (2015 RSP), which expands the ISDA 2014 Resolution Stay Protocol (2014 RSP) to include securities financing transactions (SFTs) and repurchase transactions (repos). Twenty-one global banks adhered to the 2015 RSP at launch. ISDA has published a redline of the changes from the 2014 RSP.

The operative provisions of the 2015 RSP are largely the same as the 2014 RSP, with the most significant change being that the 2015 Protocol adds an "SFT Annex" that allows parties to SFTs and repos to amend their ISDA Master Agreements to opt in to certain foreign regulatory regimes they may not otherwise be subject to, which enforce stays on contractual early termination and cross-default rights when a bank counterparty enters into bankruptcy or similar proceedings.

The covered regulatory regimes include orderly resolution regimes in the US, the UK, France, Germany, Japan, and Switzerland, with provisions designed to cover other current or future orderly resolution regimes.

Parties must adhere separately to the 2015 Protocol, as it is not automatic for 2014 Protocol adherents. Therefore, until a 2014 Protocol adherent adheres to the 2015 Protocol, the 2014 Protocol controls.

International and domestic regulators have pressured the world's largest global banks to incorporate into their trading agreements these orderly resolution accommodation provisions in their ISDA Masters to cover their swap transactions (see Legal Update, ISDA: Major Banks Agree to Stay on Swap Agreement Termination Rights in Event of Failure). These agreements otherwise permit immediate termination and liquidation of collateral upon a counterparty default.

These liquidation rights can initiate a run on a distressed bank's assets by counterparties and other creditors, and virtually assures failure of the troubled bank, as occurred with Lehman, as well as other interrelated counterparties and institutions. Repos and securities lending agreements include similar termination and liquidation provisions, which, like those in the ISDA Master, are safe harbored from the automatic stay in US bankruptcy proceedings.

By submitting themselves to these regimes, regulators will have a window to bring about an orderly solution to the distressed bank counterparty.

The following agreements are covered by the SFT Annex:

Parties wishing to adhere to the 2015 RSP can do so by submitting an adherence letter on the ISDA website. There is no cutoff date for adherence but ISDA reserves the right to designate one on 30 days' notice. An FAQ page on the 2015 Protocol can be found here.

The US regimes captured by the 2015 RSP are:

The SFT Annex was developed by SIFMA, the International Capital Market Association (ICMA), and the International Securities Lending Association (ISLA), in conjunction with ISDA and the Financial Stability Board (FSB).

ISDA is also working on a separate protocol for other market participants (such as buy-side and end-user parties), which is anticipated to be published next year.

For details on early termination rights under the ISDA Master Agreement, see Practice Note, The ISDA Master Agreement: Early Termination.

For information on FDIC’s OLA under the Dodd-Frank Act, see Practice Note, Summary of the Dodd-Frank Act: Resolution of Failing Financial Institutions: Orderly Liquidation Authority.