In May 2016, the Board of Governors of the U.S. Federal Reserve System proposed new rules that, if adopted, will constitute a significant shift in the terms of financial contracts such as over-the-counter derivatives, repurchase agreement and securities lending transactions. Under the proposed rules, these qualified financial contracts would have to conform with U.S. special resolution regimes. This would require institutional investors, hedge funds and other market participants to relinquish cross-default rights, including in contracts governed by foreign law, entered into with a foreign party, or for which collateral is held outside the U.S.

The International Swaps and Derivatives Association simultaneously released its ISDA Resolution Stay Jurisdictional Modular Protocol which seeks to allow market participants to comply with the proposed rules in the U.S. and similar rules in other jurisdictions.

In this contribution, we provide a brief overview of these proposals which, if adopted, will significantly affect the terms of many financial transactions.

By Thomas Werlen / Jonas Hertner (Reference: CapLaw-2016-33)