'YEAR 2000 REVIEW OF ISDA DOCUMENTATION' EXAMINES SCENARIOS Y2K COULD TRIGGER

NEW York, Tuesday, October 26, 1999 - The International Swaps and Derivatives Association published today the results of a detailed examination of its documentation in light of potential Y2K events. The review process encompassed the ISDA master agreements, credit support documentation and definitions booklets, all widely used in documenting privately negotiated derivatives transactions.

The review, entitled Year 2000 Review of ISDA Documentation, "is intended to draw attention to provisions contained in ISDA's documentation that ISDA considers to be of importance in light of potential Y2K date change problems," the industry association said.

Robert Pickel, ISDA general counsel, said that Y2K challenges could arise with respect to transactions maturing shortly before or shortly after the millennium date change and in transactions to which dates in late December and early January are relevant. The review, said Mr. Pickel, reflects joint work on such problems with the Foreign Exchange Committee, the Financial Markets Lawyers Group and the Global Year 2000 External Risk and Contingency Planning Committee.

Noting a number of practical considerations related to the date change, the review posits seven scenarios particularly pertinent in privately negotiated derivatives activity which ISDA concludes are those that industry participants should be focusing on:

• failure of a counterparty to perform in accordance with its obligations under relevant ISDA documentation due to a failure in its own systems
• temporary failure by a major provider of electronic price or rate sources to publish relevant display pages
• inability of a custodian to process instructions to transfer collateral
• failure of a counterparty's clearing bank
• temporary inability of a central payments system to process payments
• temporary closure of a central bank
• significant infrastructure problems disrupting electronic communications

ISDA also summarizes the principal issues "which appear most relevant in the context of Y2K," linking them to the relevant provisions in the association's publications. The areas discussed include disruption events and fallbacks, rate and price fallbacks, disruptions in screen-based price sources, duties of calculation agents, business days, Y2K readiness of relevant third parties and taking account of electronic communications breakdowns around the millennium date change.

Earlier this month the Foreign Exchange Committee, joined by ISDA and financial associations and committees in six countries, issued guidelines entitled "Y2K: Best Practice in the Foreign Exchange Market." Those guidelines set out best practice in the event that foreign exchange contracts, including options and swaps, fail to settle because a clearing bank or central bank fails to clear, or if a central bank fails to effect transfer of its local currency.

The Year 2000 Review of ISDA Documentation is available here as an industry service. A print version will be available shortly.