Frequently Asked Questions
THIS FAQ DOES NOT PURPORT
AND SHOULD NOT BE CONSIDERED TO BE A GUIDE TO OR EXPLANATION OF ALL RELEVANT
ISSUES OR CONSIDERATIONS IN CONNECTION WITH THE 2005 NOVATION PROTOCOL.
PARTIES SHOULD THEREFORE CONSULT WITH THEIR LEGAL ADVISERS AND ANY OTHER
ADVISER THEY DEEM APPROPRIATE PRIOR TO USING THE 2005 NOVATION PROTOCOL.
ISDA ASSUMES NO RESPONSIBILITY FOR ANY USE TO WHICH ANY OF ITS DOCUMENTATION
OR OTHER DOCUMENTATION MAY BE PUT.
This FAQ page may be updated over time. (The last update was on September 12, 2005.)
This FAQ is divided into four main sections:
What is the purpose of the 2005 Novation Protocol?
The purpose of the Protocol is to offer parties to the various Master Agreements published by ISDA an opportunity to agree to a uniform process by which consents to transfer of interests in Credit Derivative Transactions and Interest Rate Transactions (Covered Transactions as defined in the Protocol) are obtained. The Protocol sets out a process by which the Transferor, the Transferee and the Remaining Party will communicate prior to or concurrent with a transfer by novation of a Covered Transaction and anticipates that the consent to transfer must be requested and provided using one of the specified electronic means such as email, electronic messaging systems or electronic communication systems. The Protocol makes clear that the effectiveness of the transfer between Transferor and Transferee is conditioned solely on receipt of the consent of the Remaining Party, and provides that if by the end of the day on which the transfer is agreed the consent of the Remaining Party is not received or if the Remaining Party withholds its consent the Transferor and the Transferee will instead book a new trade between them. The Covered Transaction which was the subject of the proposed transfer by novation will remain in place between the Remaining Party and the Transferor. The Protocol also provides that the parties will follow up the transfer and consent with appropriate novation documentation as soon as practicable after the consent of the Remaining Party is obtained.
What is the Implementation Date?
The Implementation Date is the date on which parties who adhere to the protocol agree to implement the procedures regarding novations set forth in Annex 1 to the Protocol. Parties who adhere to the protocol on or prior to October 24, 2005, will implement those procedures with respect to other adhering parties from and after October 24. Parties who adhere to the protocol after October 24, 2005, will implement those procedures with respect to other adhering parties when adherence of both parties to the Protocol is effective pursuant to Section 2(c) of the Protocol.
What is the purpose of the form of Standard Email/Bloomberg Message attached as Exhibit A to the 2005 Novation Protocol?
In order to facilitate the efficient processing of transfer requests, parties that adhere to the protocol agree to use a standard form of electronic request to obtain the consent of the Remaining Party. It is also required that, the proposed Transferee should be copied on both the message from the Transferor requesting consent and on the return response from the Remaining Party.
Why do the terms of the Protocol apply only to Credit Derivative Transactions and Interest Rate Transactions?
The experience of market participants is that issues with novations are most acute with respect to Credit Derivative Transactions and Interest Rate Transactions. Accordingly, ISDA decided that the Protocol should apply to these types of transactions only. ISDA will consider a subsequent protocol that would expand the applicability of the terms of the 2005 Novation Protocol to all transactions subject to an ISDA Master Agreement.
How does the 2005 Novation Protocol work?
The Protocol reflects an innovative procedure which allows for various standardized amendments to be deemed to be made to the relevant ISDA Master Agreement. It builds on the principle that parties may agree with one or more other parties that certain terms and provisions will apply to their respective relationships (unless and until they specifically agree otherwise). The Protocol provides a multilateral mechanism which enables multiple parties to agree that, in respect of any Master Agreement between any two of them, various standardized amendments will apply.
Market participants ("Adhering Parties") indicate their participation in the Protocol arrangement by sending a letter (an "Adherence Letter") to ISDA by email to email@example.com. The Adherence Letter allows the Adhering Party to specify that Annex 1 to the 2005 Novation Protocol, containing standardized amendments to its Master Agreement, will apply with other Adhering Parties.
By submitting the Adherence Letter, the Adhering Party agrees that the provisions of Annex 1 will apply in respect of Covered Transactions with another Adhering Party submitting an Adherence Letter.
The amendment and adherence process, among other matters, is set out in the Protocol itself, which is published on ISDA's web site (www.isda.org), along with a form of the Adherence Letter. For further detail on the adherence process, please see the Protocol Mechanics section of this FAQ.
Why should I consider participating in the 2005 Novation Protocol?
The Protocol has a number of significant advantages. In summary:
For whom is the 2005 Novation Protocol designed?
Do I need to be an ISDA member to participate in the 2005 Novation Protocol?
No. The Protocol is open equally to members of ISDA and non-members of ISDA.
Is the 2005 Novation Protocol in any way related to previous ISDA Protocols (e.g., the EMU Protocol or the CDS Index Protocol)?
No. This Protocol is separate and independent from each other ISDA Protocol. Whether or not a party has adhered to any other ISDA Protocol is irrelevant for purposes of this Protocol.
What alternatives (if any) are there to participating in the 2005 Novation Protocol?
The issues relating to Covered Transactions could be addressed by way of individually negotiated agreements or by incorporating relevant provisions of the Protocol by reference. However, in either case, bilateral negotiations would be required and these could be time consuming and therefore costly.
Is ISDA providing accompanying legal opinions
on the 2005 Novation Protocol?
How can I check the signing authority of other
2005 Novation Protocol Adherents?
Can I obtain copies of supporting documents or
hard copies of Adherence Letters?
Which party in a corporate group must adhere?
Each legal entity that has entered into a Master Agreement pursuant to which it has entered into Covered Transactions must adhere separately in its own capacity if it wishes to adhere to the Protocol. The Protocol does not contemplate adherence by a group of separate legal entities.
Can I use one Adherence Letter for all my firms'
How long do I have to participate in the 2005 Novation Protocol. Is there a deadline?
The Protocol will be open for adherence between Monday, September 12 and Monday, October 31, 2005. Please note that pursuant to the terms of the Protocol, the original deadline of October 31, 2005 was extended to November 30, 2005.
Why is there a limited adherence period for
the 2005 Novation Protocol?
How will I know who has adhered to the 2005 Novation Protocol?
A list of Adhering Parties, updated at least once every day during the Protocol period, is displayed on ISDA's web site.
Can I modify the wording of the 2005 Novation Protocol or the substantive clauses?
No. Any changes to the standardized wording set out in the Protocol or to the standard form Adherence Letter will be considered invalid and unenforceable. Counterparties can, of course, negotiate and agree to any changes bilaterally outside the scope of the Protocol. The Protocol in no way inhibits freedom of contract whether the parties have adhered to the Protocol or not. If parties to a Covered Transaction wish to vary the terms of the Protocol, Section 5(c) of the Protocol describes how they should do so.
Can I revoke my participation in the 2005 Novation
What is ISDA's role in the 2005 Novation Protocol?
What will ISDA do with evidence of authority
submitted to it?
How can I participate in the 2005 Novation Protocol?
Are parties required to provide evidence of
authority to ISDA?
What do I need to do after sending in my Adherence
How much does adherence to the 2005 Novation
How can I get a copy of the 2005 Novation Protocol
and other relevant information?