Open from August 18, 2021
The International Swaps and Derivatives Association, Inc. (ISDA) has published the ISDA 2021 EONIA Collateral Agreements Fallbacks Protocol (the EONIA Collateral Protocol).
The EONIA Collateral Protocol offers market participants an efficient way to amend the terms of certain ISDA collateral agreements to incorporate a fallback to €STR plus 8.5 basis points upon the cessation of EONIA.
Please refer to the “Frequently Asked Questions” for more information.
The EONIA Collateral Protocol is open to ISDA members and non-members. Parties will pay a one-time fee of $500 to ISDA to adhere to the EONIA Collateral Protocol. There is no cut-off date to this EONIA Collateral Protocol. ISDA does, however, reserve the right to designate a cut-off date by giving 30 days’ notice on this site.
ISDA has prepared this list of frequently asked questions to assist in your consideration of the ISDA 2021 EONIA Collateral Agreements Fallbacks Protocol (the Protocol).
THESE FREQUENTLY ASKED QUESTIONS DO NOT PURPORT TO BE AND SHOULD NOT BE CONSIDERED A GUIDE TO OR AN EXPLANATION OF ALL RELEVANT ISSUES OR CONSIDERATIONS IN CONNECTION WITH THE PROTOCOL. PARTIES SHOULD CONSULT WITH THEIR LEGAL ADVISERS AND ANY OTHER ADVISER THEY DEEM APPROPRIATE PRIOR TO USING OR ADHERING TO THE PROTOCOL. ISDA ASSUMES NO RESPONSIBILITY FOR ANY USE TO WHICH ANY OF ITS DOCUMENTATION OR OTHER DOCUMENTATION MAY BE PUT.
- What does the Protocol do?
The primary purpose of the Protocol is to allow parties to amend ISDA published collateral agreements to incorporate a fallback to €STR plus 8.5 basis points upon the cessation of EONIA.
The Protocol will amend certain ISDA published collateral agreements referencing EONIA (howsoever defined) between adhering parties to incorporate version 2.0 of the ISDA Collateral Agreement Interest Rate Definitions, published by ISDA on August 14, 2020 (the CAIRD 2.0). Pursuant to this amendment, references to EONIA will be deleted and replaced with references to EONIA (Collateral Rate) as defined in the CAIRD 2.0.
This amendment, as noted above, would have the primary effect of implementing a fallback to €STR plus 8.5 basis points which would apply for each day on or after an EONIA Index Cessation Effective Date (as defined in the CAIRD), which is the first day on which EONIA is no longer provided. Further fallbacks (as set out in the CAIRD) would also be incorporated and apply in the event that €STR is discontinued.
- Which agreements does the Protocol cover?
The Protocol covers the ISDA published collateral agreements listed below unless the parties to that agreement have entered into a written agreement (but excluding a one-way email or exchange of emails) that includes a fallback rate (or methodology to determine a fallback rate) upon the cessation (howsoever described) of EONIA.
The Protocol will also not apply to any ISDA published collateral agreement listed below that includes express language stating that the Protocol shall not apply to it.
The list of ISDA published collateral agreements referred to above are the (a) 1994 ISDA Credit Support Annex (Bilateral Form; ISDA Agreements Subject to New York Law Only); (b) 1995 ISDA Credit Support Annex (Bilateral Form – Transfer; ISDA Agreements Subject to English law); (c) 1995 ISDA Credit Support Deed (Bilateral Form – Security Interest; ISDA Agreements Subject to English Law); (d) 1995 ISDA Credit Support Annex (Bilateral Form – Loan and Pledge; Security Interest Subject to Japanese Law); (e) 1995 ISDA Credit Support Annex (Bilateral Form – Transfer; ISDA Agreement Subject to French Law); (f) 1995 ISDA Credit Support Annex (Bilateral Form – Transfer; ISDA Agreement Subject to Irish Law); (g) 2008 ISDA Credit Support Annex (Loan/Japanese Pledge); (h) 2013 Standard Credit Support Annex (New York Law); (i) 2013 Standard Credit Support Annex (English Law); (j) 2014 Standard Credit Support Annex (New York Law – Multicurrency Settlement); (k) 2014 Standard Credit Support Annex (English Law – Multicurrency Settlement); (l) 2014 ISDA Korean Law Credit Support Annex (Bilateral Form – Loan and Pledge; Credit Support Annex Subject to Korean Law); (m) 2016 Credit Support Annex for Variation Margin (VM) (Bilateral Form; ISDA Agreements Subject to New York Law Only), including any such form entered into between the Parties pursuant to the ISDA 2016 Variation Margin Protocol; (n) 2016 Credit Support Annex for Variation Margin (VM) (Bilateral Form – Transfer; ISDA Agreements Subject to English Law), including any such form entered into between the Parties pursuant to the ISDA 2016 Variation Margin Protocol; (o) 2016 Credit Support Annex for Variation Margin (VM) (Bilateral Form – Loan; ISDA Agreements Subject to Japanese Law), including any such form entered into between the Parties pursuant to the ISDA 2016 Variation Margin Protocol; (p) 2016 Credit Support Annex for Variation Margin (VM) (Bilateral Form – Transfer; ISDA Agreements Subject to French Law); or (q) 2016 Credit Support Annex for Variation Margin (VM) (Bilateral Form – Transfer; ISDA Agreements Subject to Irish Law).
- When does the Protocol become effective?
Amendments to covered agreements will take place as of the date on which the later of the two adhering parties submits an adherence letter that is approved and accepted by ISDA.
However, the consequences of those amendments i.e. the triggering of fallback provisions causing in scope collateral agreements to fallback to €STR plus 8.5 basis points, will not become effective until the cessation of EONIA which the administrator of EONIA, the European Money Markets Institute (EMMI), has announced will take place on 3 January 2022 (EONIA Consultation - Feedback Summary).
- How does the Protocol interact with the ISDA 2014 Collateral Agreement Negative Interest Rate Protocol?
Adherence to the Protocol does not affect the application of the ISDA 2014 Collateral Agreement Negative Interest Rate Protocol. The Protocol incorporates the CAIRD 2.0, which includes an express provision to this effect. To ensure legal certainty, the Protocol also includes express ‘for the avoidance of doubt’ language clarifying that each Protocol Covered Document is subject to, and incorporates, that express provision from the CAIRD 2.0.
- What kind of entities can adhere to the Protocol?
The Protocol is open to adherence by any entity regardless of where it may be domiciled or the regulations to which it is subject. Entities may adhere individually in their own capacity or as agents on behalf of clients. See below for more information on adherence options for agents.
- Can entities that are not ISDA members adhere to the Protocol?
Yes. ISDA members and non-ISDA members alike may adhere to the Protocol in the same way.
- Is there a closing date for adherence to the Protocol?
There is currently no cut-off date for adherence, but ISDA reserves the right to designate a closing date of the Protocol by giving 30 days’ notice on this site.
- How do I submit my adherence letter?
Each market participant that intends to adhere to the IBOR Fallbacks Protocol should access the “Protocols” section of the ISDA website at www.isda.org to enter the information that is required to generate its form of Adherence Letter. Either by directly downloading the populated Adherence Letter from the Protocol system or upon receipt via e-mail of the populated Adherence Letter, each Adhering Party should sign the populated Adherence Letter (a “wet-ink” signature is not required) and upload it as a PDF (portable document format) attachment into the Protocol system. Once the signed Adherence Letter has been approved and accepted by ISDA, such Adhering Party will receive an e-mail confirmation of adherence to the IBOR Fallbacks Protocol.
- What is a conformed copy?
A conformed copy of the Adherence Letter means that the name of the authorized signatory (for example, Patricia Smith) is typed rather than having Patricia Smith’s actual signature on the letter. ISDA only posts on its website the conformed copy of all Adherence Letters. A conformed copy of each Adherence Letter containing, in place of each signature, the printed or typewritten name of each signatory will be published by ISDA so that it may be viewed on ISDA’s website.
- Who is an authorized signatory?
An authorized signatory to the Adherence Letter or a Questionnaire is an individual who has the legal authority to bind the adhering institution.
- Can I change the text of the adherence letter?
No. The Adherence Letter must be in the same format as the form of letter published in the Protocol and generated by the protocol webpage.
- Are there any costs to adhere to the Protocol?
Yes. Each party adhering to the Protocol must submit a one-time fee of U.S. $500 to ISDA at or before the submission of its Adherence Letter. Adhering Parties should review the documents to be amended to identify the entity that signed the documents, and the capacity in which such entity signed the documents, to determine which entity submits the Adherence Letter. For example, if a parent company/agent has signed the agreement on behalf of all entities within the group, then only the parent company/agent needs to adhere. However, if each group entity has its own agreement in place which it has itself executed as principal, then each such entity would need to adhere.
Each individual legal entity is considered a separate Adhering Party for this purpose and would need to pay the adherence fee, except that an Investment/Asset Manager/Agent that adheres on behalf of one or more underlying funds or principals for whom it has entered into a Protocol Covered Collateral Agreement, using a single Adherence Letter, would only pay a single adherence fee for that Adherence Letter.
- Can I revoke my participation in the Protocol?
No. Once an Adherence Letter has been accepted by ISDA, an Adhering Party is bound by all amendments with other parties that have already adhered to the Protocol or, subject to the discussion below, that adhere before a designation of the Annual Revocation Date.
An Adhering Party may, at any time during the period from October 1 to October 31 of a calendar year, deliver to ISDA a notice specifying the Annual Revocation Date as its cut-off date in respect of amendments with future Adhering Parties. The effect of such a letter will be to withdraw adherence for future Adhering Parties as of December 31 in that calendar year. Although amendments already made will not be revoked, any subsequent adherence by new Adhering Parties after the designated Annual Revocation Date will not bind the party that has submitted a Revocation Notice.
You can, however, bilaterally agree to amend your Protocol Covered Collateral Agreement with your counterparty (the other Adhering Party) and any such subsequent amendments will supersede those made by the Protocol to the extent that they are inconsistent.
- What are the options for adherence for investment/asset managers?
Agents can adhere on behalf of one or more underlying clients using the execution block options provided as footnotes to the form of adherence letter and which are included in a dropdown menu in the “Protocols” section of the ISDA website at www.isda.org.
The template language options allow agents to adhere on behalf of (i) all underlying clients, (ii) certain underlying clients only by specifically identifying such clients, or (iii) certain clients only by specifically identifying excluded clients.