ISDA in the Development of its Resolution Stay Protocol

Cleary Gottlieb represented the International Swaps and Derivatives Association, Inc. (ISDA) in the drafting and negotiation of its Resolution Stay Protocol. Developed at the request of international bank regulators, and in fulfillment of G-20 leaders’ policy commitments to end “too big to fail,” the Protocol enables derivatives dealers and their counterparties to amend the terms of their ISDA Master Agreements and related credit support arrangements to opt in to resolution regimes that stay and, in certain cases, override certain default rights of the counterparty that arise upon resolution of the dealer under so-called special resolution regimes, such as the US Orderly Liquidation Authority and the EU Bank Recovery and Resolution Directive. The Protocol also introduces similar stays and overrides upon an affiliate of the dealer entity entering proceedings under the US Bankruptcy Code, which does not itself stay the exercise of cross-default rights. The Protocol was created in partnership with a working group of ISDA member institutions (including representatives from buy-side and sell-side institutions), in coordination with the Financial Stability Board, and is considered a major component of regulatory and industry initiatives to address the “too big to fail” issue.