ISDA has published a new interactive digital framework that market participants can use to help prepare for potential terminations of collateralized derivatives contracts.
Launch of the ISDA Close-out Framework is in response to the March 2023 failure of Signature Bank and SVB in the US, which highlighted the complexities of potentially terminating over-the-counter derivatives trading relationships following various post-crisis regulatory reforms. Specifically, in-scope entities are now required to post margin for non-cleared derivatives transactions, while various jurisdictions have introduced mandatory stays on termination rights and remedies as part of bank resolution regimes.
The ISDA Close-out Framework is intended to be used as a preparatory resource to help firms coordinate internal business functions and stakeholders and internal and external legal, operational, risk management, infrastructure and other relevant service providers to ensure they are adequately prepared for any potential future stress events.
The framework includes high-level analysis of the default mechanics and collateral enforcement provisions in ISDA documentation, along with additional commentary on bank resolution legislation in the US and Europe.
“Recent stress events have drummed home that terminating a portfolio of derivatives trades is now much more complex as a result of regulatory reforms. The introduction of mandatory margining and segregation requirements, alongside the implementation of bank resolution regimes, means firms need to be able to quickly respond to complex legal and operational issues that will require input from different teams across the organization. The ISDA Close-out Framework provides an essential interactive tool that firms can use to prepare ahead of any potential stress event,” said Katherine Tew Darras, ISDA’s General Counsel.
The ISDA Close-out Framework is available here: https://close-out.isda.org/#/.
Further information on the ISDA Close-out Framework is available here: https://assets.isda.org/media/5e46315f/06731822.pdf
For Press Queries, Please Contact:
Nick Sawyer, ISDA London, +44 20 3808 9740, nsawyer@isda.org
Joel Clark, ISDA London, +44 20 3808 9760, jclark@isda.org
Christopher Faimali, ISDA London, +44 20 3808 9736, cfaimali@isda.org
Nikki Lu, ISDA Hong Kong, +852 2200 5901, nlu@isda.org
Documents (1) for ISDA Publishes Framework to Prepare for Close Out of Derivatives Contracts
Latest
ISDA Comment on ICC Application as Clearing Agency
On October 6 ISDA submitted a comment letter to the Securities and Exchange Commission in response to the ICE Clear Credit (“ICC”) application for registration as a clearing agency under Section 17A of the Securities Exchange Act of 1934, including...
Paper on Enhancing Liquidity and Risk Management
As ISDA marks its 40th anniversary this year, it is an opportune time to reflect on the challenges and opportunities faced by the global derivatives markets over the past four decades. Rapid growth, continued innovation, regulatory reform, central clearing, margining,...
Trade Bodies Seek Delay on Third-Country CCP Rules
On October 21, ISDA and nine other trade associations – the Alternative Investment Management Association, the European Association of Co-operative Banks, the European Association of Corporate Treasurers, the European Banking Federation, the European Fund and Asset Management Association, the European...
ISDA and Tokenovate Launch CDM Taskforce
ISDA and Tokenovate have today announced the establishment of a new taskforce within the Fintech Open Source Foundation (FINOS) to accelerate operationalization of the Common Domain Model (CDM). The initiative responds to growing market demand for standardized, interoperable post-trade processing...