Swaps termination rights and collateral demands will be delayed under rules introduced by the International Swaps and Derivatives Association and agreed to Oct. 11 by 18 major banks.
The delay on cross-default and early termination rights within standard ISDA derivatives contracts is intended to give regulators time to facilitate an orderly resolution of a troubled bank, according to details on the ISDA protocol on the organization’s website.
The rules will take effect Jan. 1 and will be applied to new and existing trades between parties.
“This is a major industry initiative to address the too-big-to-fail issue and reduce systemic risk, while also incorporating important creditor safeguards,” Scott O’Malia, ISDA CEO, said in a news release. “The ISDA Resolution Stay Protocol has been developed in close coordination with regulators to facilitate cross-border resolution efforts and reduce the risk of a disorderly unwind of derivatives portfolios.”
Regulators in several countries have committed to develop new regulations in 2015 that will promote broader adoption of the stay provisions beyond the 18 banks, according to the ISDA.
The banks that agreed to the protocol will extend the coverage of stays to more than 90% of their outstanding notional derivatives.
Banks that agreed to the rules on Oct. 11 are: Bank of America Corp.; Bank of Tokyo-Mitsubishi UFJ; Barclays PLC; BNP Paribas, Citigroup Inc.; Credit Agricole; Credit Suisse Group; Deutsche Bank AG; Goldman Sachs & Co.; HSBC PLC; J.P. Morgan Chase & Co.; Mizuho Financial Group; Morgan Stanley; Nomura Holdings; Royal Bank of Scotland PLC; Societe Generale; Sumitomo Mitsui Financial Group; and UBS AG.