Beaumont Publishes Article on Derivatives Protocol for Failing Banks

October 27, 2014

Friedman Kaplan litigation partner Anne E. Beaumont has authored an article that appears in the October 27, 2014 issue of Bloomberg BNA's Securities Regulation and Law Report titled "Banks Agree to ISDA Resolution Stay Protocol Despite Buy-Side Resistance but Practical Questions Remain." The article addresses the following key points:

  • The recently announced ISDA Resolution Stay Protocol, which applies to 18 major banks, suspends for two days these banks' exercise of their Early Termination rights under the ISDA Master Agreement for over-the-counter derivatives where one of the banks is failing. (The actual wording of the protocol has not yet been published.)
  • The protocol does not currently apply to any banks other than the 18 that signed on, nor does it apply to "buy-side" institutions. As such, it could give non-signatories an advantage over the signatories.
  • The two-day suspension is extremely brief, and there is a serious question whether it provides sufficient time to take the actions necessary to transfer a failing bank's derivatives book to a solvent institution.