This is a U.S. regulation that applies to certain prime brokers and the experts in Duff & Phelps’ UK Compliance Consulting practice have created a short memo to provide firms with some information on this.
What are the U.S. Stay Regulations?
They are regulations issued by a series of U.S. regulators (The Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency) that require U.S. global systemically important banks (G-SIBs) and U.S. branches and subsidiaries of foreign G-SIBS to amend certain qualified financial contracts (QFCs) with their clients.
Which contracts are affected?
QFCs could include any agreements to transact in swaps, repurchase agreements, securities lending transactions, FX transactions, securities contracts (including all contracts for the purchase, sale or loan of securities), forward contracts and commodities contracts.
What changes need to be made to QFCs?
While there is no legal or regulatory requirement for non-G-SIB entities to adhere to the Resolution Stay Protocol, G-SIBs will need to amend the relevant QFCs to conform to the U.S. Stay Regulation requirements to continue trading under those contracts.
What amendments do I need to make?
Clients of G-SIBs can amend their QFCs by adhering to the ISDA 2018 U.S. Resolution Stay Protocol. This provides a contractual “opt-in” to certain special resolution regimes that stay the exercise of termination rights upon insolvency of a G-SIB and permit the possible transfer of the QFC to a performing entity.
How do I adhere to the Resolution Stay Protocol?
Clients of G-SIBs must submit an Adherence Letter by accessing the Protocol section of the ISDA website at www.isda.org and enter the information in the online form which will generate an Adherence Letter. A $500 fee applies for the submission of each letter.
Asset managers adhering on behalf of all their funds/clients should choose the following adherence type in the Adherence Letter: “Investment/Asset Manager or Other Agent on Behalf of All Funds, Accounts or other Principals that it Represents”.
Asset managers adhering on behalf of some, but not all of their funds/clients may choose the following adherence type in the Adherence Letter: “Investment/Asset Manager or Other Agent on Behalf of Certain Identified Funds, Accounts or other Principals that it Represents”. Asset managers who are adhering on behalf of some, but not all of their funds/clients must identify those funds/clients to be included or excluded from such adherence through an electronic platform such as ISDA Amend platform powered by IHS market.
Before you adhere, it is important to check with your G-SIB to ensure you are adhering in a manner they find acceptable.
You can either download the populated Adherence Letter from the protocol management system or receive it via email. You must then print, sign and upload the signed Adherence Letter as a PDF into the ISDA protocol management system. Once the signed Adherence Letter has been accepted by ISDA you will receive an email confirmation of adherence to the ISDA U.S. Stay Protocol. A list of adhering parties is published on the ISDA website. ISDA has published a step-by-step guide to adherence which can be found here.
When is the deadline?
- For QFCs between two G-SIBs, the deadline for compliance is January 1, 2019.
- For QFCs between a G-SIB and a non-G-SIB financial counterparty, the deadline for compliance is July 1, 2019.
- January 1, 2020 for other counterparties.
If you or firm requires assistance with adhering to these regulations or require more information, please contact us.