ISDA 2021 SBS Protocol

Open from May 3, 2021

The ISDA 2021 SBS Protocol (the SBS Protocol) is part of ISDA’s Dodd-Frank Documentation Initiative aimed at assisting the industry in implementing and complying with the regulatory requirements imposed under Title VII of the Dodd–Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank).

This protocol enables parties to enter into ISDA SBS Protocol Master Agreements (as defined in the Agreement) and/or supplement the terms of Protocol Covered Agreements (as defined in the Agreement) by incorporating therein selected portions of the ISDA SBS Protocol Supplement I (the SBS Supplement I) and/or the ISDA SBS Protocol Supplement II (the SBS Supplement II and, together with SBS Supplement I, the SBS Supplements), each published on the date hereof.

Please refer to the "Frequently Asked Questions" for more information.

The ISDA 2021 SBS Protocol is open to ISDA members and non-members. Parties will pay a one-time fee of $500 to ISDA for each adherence to the ISDA 2021 SBS Protocol . There is no cut-off date to the ISDA 2021 SBS 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 brief summary to assist in your consideration of the ISDA 2021 SBS Protocol. Capitalized terms not otherwise defined herein have the meanings ascribed to them in the ISDA 2021 SBS Protocol documents.

THIS SUMMARY DOES NOT PURPORT TO BE AND SHOULD NOT BE CONSIDERED A GUIDE TO OR AN EXPLANATION OF ALL RELEVANT ISSUES IN CONNECTION WITH YOUR CONSIDERATION OF THE ISDA 2021 SBS PROTOCOL OR THE RELATED DOCUMENTS. PARTIES SHOULD CONSULT WITH THEIR LEGAL ADVISERS AND ANY OTHER ADVISERS THEY DEEM APPROPRIATE AS PART OF THEIR CONSIDERATION OF THE PROTOCOL PRIOR TO ADHERING TO THE PROTOCOL. ISDA ASSUMES NO RESPONSIBILITY FOR ANY USE TO WHICH ANY OF ITS DOCUMENTATION OR OTHER DOCUMENTATION MAY BE PUT.

Q. What is a “protocol”?

An ISDA protocol is a multilateral contractual amendment mechanism that allows for various standardized amendments to be deemed to be made to the relevant Protocol Covered Agreements between any two adhering parties. 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).

Q. How can market participants participate in the ISDA 2021 SBS Protocol?

Market participants indicate their participation in the protocol arrangement by following the adherence instructions posted on the ISDA website (www.isda.org), which includes submission of a letter (an “Adherence Letter”) and payment of an adherence fee of US $500.00. Each party submitting a letter and paying the adherence fee is a “Protocol Participant.” Additionally, for the ISDA 2021 SBS Protocol, Protocol Participants will need to make a small number of elections in the Adherence Letter and, importantly, exchange Questionnaires with other Protocol Participants.

Q. How does the ISDA 2021 SBS Protocol compare to previous ISDA protocols?

The ISDA 2021 SBS Protocol is a Questionnaire Protocol, which means that each party that submits an Adherence Letter must also deliver a completed Questionnaire to another Protocol Participant for the protocol terms to be effective with respect to that Protocol Participant. Protocol Participants will be able to deliver these Questionnaires to each other electronically through the ISDA Amend platform developed by ISDA and IHS Markit. ISDA Amend is available at http://www.markit.com/en/products/distribution/document-exchange/registration.page.

Q. How does the ISDA 2021 SBS Protocol relate to the ISDA 2021 SBS Top-Up Protocol?

The ISDA 2021 SBS Protocol and the ISDA 2021 SBS Top-Up Protocol (the “Top-up Protocol”) are both designed to facilitate compliance with the SEC’s security-based swap regulatory requirements. The ISDA 2021 SBS Protocol is a freestanding process, while the Top-up Protocol leverages ISDA’s earlier Protocols for swaps, namely the ISDA August 2012 Dodd-Frank Protocol and the ISDA March 2013 Dodd-Frank Protocol. As a result, the ISDA 2021 SBS Protocol can be used with any trading counterparty, but the Top-up Protocol can only be used for trading relationships where parties have adhered to, and exchanged questionnaires for, either the ISDA August 2012 Dodd-Frank Protocol or the ISDA March 2013 Dodd-Frank Protocol.

Q. Why did ISDA publish both the ISDA 2021 SBS Protocol and the ISDA 2021 SBS Top-Up Protocol?

Where parties have already completed either the ISDA August 2012 Dodd-Frank Protocol or the ISDA March 2013 Dodd-Frank Protocol, they may find it more efficient to use the ISDA 2021 SBS Top-Up Protocol, as it will not require new exchange of Questionnaires.

However, there may be cases where the parties did not need to complete compliance for swaps, e.g. because of the different cross-border application of the security-based swap rules, or because a trading relationship includes security-based swaps but not swaps. In those cases, the ISDA 2021 SBS Top-Up Protocol will not be available, but the ISDA 2021 SBS Protocol may be used.

In practice, an entity may use the ISDA 2021 SBS Protocol with some counterparties and the Top-up Protocol with others.

Q. Why does the ISDA 2021 SBS Protocol have two Questionnaires and two Supplements?

Due to different cross-border application of different rules, some counterparty relationships may be subject to the rules covered in e.g. Supplement 2, but not Supplement 1. Those parties may therefore choose to apply only Supplement 2 by exchanging only Questionnaire 2.

The division of rules between Supplements 1 and 2 is generally similar to the division of equivalent swaps rules between the ISDA August 2012 Dodd-Frank Protocol and the ISDA March 2013 Dodd-Frank Protocol.

Q. What regulatory requirements does the ISDA 2021 SBS Protocol address?

The ISDA 2021 SBS Protocol is intended to address requirements of the following SEC final rules across its two Questionnaires:

Questionnaire 1:

  • Regulation SBSR – Reporting and Dissemination of Security-Based Swap Information, 80 Fed. Reg. 14563 (Feb. 11, 2015)
  • Registration Process for Security-Based Swap Dealers and Major Security-Based Swap Participants, 80 Fed. Reg. 14437 (Aug. 14, 2015)
  • Business Conduct Standards for Security-Based Swap Dealers and Major Security-Based Swap Participants, 81 Fed. Reg. 29959 (May 13, 2016)
  • Regulation SBSR – Reporting and Dissemination of Security-Based Swap Information, 81 Fed. Reg. 53545 (Aug. 12, 2016)
  • Recordkeeping and Reporting Requirements for Security-Based Swap Dealers, Major Security-Based Swap Participants, and Broker-Dealers, 84 Fed. Reg. 68550 (Dec. 16, 2019)

Questionnaire 2:

  • Registration Process for Security-Based Swap Dealers and Major Security-Based Swap Participants, 80 Fed. Reg. 14437 (Aug. 14, 2015)
  • Regulation SBSR – Reporting and Dissemination of Security-Based Swap Information, 80 Fed. Reg. 14563 (Feb. 11, 2015)
  • Regulation SBSR – Reporting and Dissemination of Security-Based Swap Information, 81 Fed. Reg. 53545 (Aug. 12, 2016)
  • Trade Acknowledgement and Verification of Security-Based Swap Transactions, 81 Fed. Reg. 39807 (June 17, 2016)
  • Risk Mitigation Techniques for Uncleared Security-Based Swaps, 85 Fed. Reg. 6359 (Feb. 4, 2020)

Q. What agreements does the ISDA 2021 SBS Protocol cover?

The Protocol is designed to supplement existing written agreements governing the terms and conditions of one or more transactions in security-based swaps. The Protocol is not limited to ISDA Master Agreements and may be used to amend all agreements between a pair of parties pursuant to which they enter into security-based swaps.

Agreements that may be supplemented through the Protocol are called “Protocol Covered Agreements” in the Protocol Agreement. Other documents within the suite of documents provided as part of the Protocol use more generic terms (“Covered Agreement” or “Agreement”), to facilitate their use in other contexts. However, the Protocol process may only be used to supplement agreements that meet the definition of Protocol Covered Agreements.

Q. What changes does the ISDA 2021 SBS Protocol make?

The Protocol adds notices, representations, covenants, and agreements responsive to the SEC’s Dodd-Frank Title VII requirements that must be satisfied at or prior to the time that swap transactions are offered and executed.

Q. How is the ISDA 2021 SBS Protocol structured?

The basic architecture consists of six documents: (I) an Adherence Letter, (II) two Questionnaires, (III) the Protocol Agreement, and (IV) two Supplements.

Q. What is the Adherence Letter?

The Adherence Letter must be signed and submitted by each party agreeing to the terms of the Protocol Agreement in order to participate in the Protocol. Adhering parties must include name, address, and other non-sensitive information.

Each adhering party must specify the address (electronic or otherwise) and means by which the adhering party will receive Questionnaires as a Protocol Participant from other Protocol Participants, and identify whether the adhering party is, or expects to register as, a security-based swap dealer or major security-based swap participant.

The Adherence Letter will be uploaded and available for public view, like prior ISDA protocol adherence letters.

Q. What is the Protocol Agreement?

The Protocol Agreement establishes an agreed process for amending agreements that govern the terms and conditions of one or more security-based swap transactions and/or entering into a “ISDA SBS Protocol Master Agreement”. Each such agreement is defined as a “Protocol Covered Agreement.”

It defines a “PCA Principal” and a “PCA Agent” and specifies how a person may participate in the ISDA 2021 SBS Protocol as a PCA Principal or PCA Agent (or both), by adhering to the Protocol and completing and delivering one or more Questionnaires.

Q. Who is a “PCA Principal” and “PCA Agent” and what can they do?

A “PCA Principal” is a party who is or may become a principal to one or more security-based swaps under a Protocol Covered Agreement, and a “PCA Agent” is a party who has executed a Protocol Covered Agreement as an agent on behalf of a one or more PCA Principals.

Each PCA Principal and PCA Agent can supplement Protocol Covered Agreements by completing and delivering Questionnaires, but only a party that executed an existing Protocol Covered Agreement (as PCA Principal or PCA Agent on behalf of a PCA Principal) may use the Protocol to supplement that Protocol Covered Agreement.

Q. What are the Questionnaires?

The two Questionnaires are the documents used by Protocol Participants to supplement Protocol Covered Agreements. They provide for the delivery of required information about a Protocol Participant (or in the case of a Questionnaire delivered by PCA Agent, its PCA Principals) to relevant counterparties, representations as to the legal status of the relevant PCA Principal(s) (e.g., eligible contract participant, swap dealer, major swap participant, special entity, etc.), and they allow a PCA Principal to make various elections under the Supplements, including the particular Schedules that will supplement its Protocol Covered Agreements.

Each Questionnaire is related to one of the Supplements to the Protocol. A Protocol Participant may exchange one or both Questionnaires with a counterparty, depending on which Supplements it wants to apply to that trading relationship.

Q. Can I submit multiple Questionnaires?

For each of the two Questionnaires, a Protocol Participant is permitted to complete more than one version of the Questionnaire so that it may deliver different versions of that Questionnaire to different counterparties under the Protocol.

A Protocol Participant completing a Questionnaire online through ISDA Amend will have the ability to deliver that form of Questionnaire through ISDA Amend exclusively to other Protocol Participants that it has specifically approved.

Q. Can I combine Questionnaires for underlying clients?

A PCA Agent (e.g., an investment advisor or ERISA fiduciary) who has an existing “umbrella” agreement with a swap dealer for multiple underlying clients may complete and deliver a single Questionnaire on behalf of all or some of such clients.

Q. What are the Supplements?

The two Supplement contain the substantive provisions for the Protocol, and set forth standardized representations, acknowledgments, notifications and agreements relating to the Covered Rules. These terms have been divided into various Schedules within each Supplement, because some of the Schedules are optional or will only apply in certain circumstances.

Q. Which Schedules apply in Supplement 1?

In Supplement 1 to the ISDA 2021 SBS Protocol, Schedules 1 and 2 are automatically incorporated into Protocol Covered Agreements through the exchange of Questionnaires. However, certain sections of Schedule 2 are only applicable to certain types of counterparty pairs.

Schedules 3-6 are optional and applicable only if both PCA Principals with respect to a pair of exchanged Questionnaires have elected to apply them.

Q. Which Schedules apply in Supplement 2?

In Supplement 2 to the ISDA 2021 SBS Protocol, Schedules 1 and 2 are automatically incorporated into Protocol Covered Agreements through the exchange of Questionnaires. However, certain sections of Schedule 2 are only applicable to certain types of counterparty pairs.

Schedules 3-4 are optional and applicable only if both PCA Principals with respect to a pair of exchanged Questionnaires have elected to apply them.

Q. What is ISDA Amend?

ISDA Amend is an online platform developed by ISDA and IHS Markit allowing for the electronic exchange of information.

Parties will be able to deliver their Questionnaires for the ISDA 2021 SBS Protocol electronically to permissioned counterparties in ISDA Amend.

Q. Will adherence to the ISDA 2021 SBS Protocol satisfy all regulatory requirements/obligations in connection with the Covered Rules?

The SEC regulations addressed by the ISDA 2021 SBS Protocol have far-ranging implications for the derivatives market, including the terms under which counterparties are required or wish to transact in security-based swaps. While certain of the regulations (and the statutory requirements that they implement) impose specific documentation requirements, others impose compliance requirements for swap dealers that can be met through various combinations of documentation and internal policies, and still others are not susceptible to being addressed through a protocol. The Protocol is designed to provide basic standardized provisions to enable market participants to amend their existing documentation with security-based swap dealers or major-security based swap participants, as applicable. While provision of such standardized terms is designed to provide an efficient manner for a large number of counterparties to amend their bilateral contracts to address basic requirements of the relevant SEC regulations, it cannot address all situations, products or types of counterparties. Counterparties should obtain legal advice as to whether the provisions of the Protocol address their particular situation.

Q. Is there a closing date for adherence to the Protocol?

There is no cut-off date for adherence. ISDA reserves the right to designate a closing date of this protocol by giving 30 days’ notice on this site.

Q. How do I submit my Adherence Letter?

Each entity executing an Adherence Letter will access the Protocol Management section of the ISDA website at www.isda.org to enter information online that is required to generate its form of Adherence Letter. Either by directly downloading the populated Adherence Letter from the Protocol Management system or upon receipt via e-mail of the populated Adherence Letter, the entity must sign and upload the signed Adherence Letter as a PDF (portable document format) attachment into the Protocol Management system. Once the signed Adherence Letter has been approved and accepted by ISDA, the Protocol adherent will receive an e-mail confirmation of the Protocol adherent’s adherence to the Protocol.

The Adherence Letter(s) should be on your institution’s letterhead, which you are able to upload into the Protocol Management system during the online submission of information to generate the Adherence Letter. Nothing in the form of Adherence Letter available on ISDA’s website may be changed with the exception of completing the details of your institutional name and contact details, date, Covered SBS Entity Election, Adherence letter ID and signature block.

ISDA keeps the executed copy of the Adherence Letter for its files and does not share the executed copy with anyone else. Please do not send your original Adherence Letter(s) by mail to ISDA.

Q. Can entities that are not ISDA members sign up to the ISDA 2021 SBS Protocol?

Yes. The Protocol is open to any entity. ISDA members and non-ISDA members alike adhere to the Protocol in the same way.

Q. 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 by all Protocol Participants.

Q. Who is an authorized signatory?

An authorized signatory to the Adherence Letter is an individual who has the legal authority to bind the adhering institution.

Q. Can I change the text of the Adherence Letter?

No. The Adherence Letter must be in the same format as the form letter published in the Protocol.

Q. Are there any costs to adhere to the ISDA 2021 SBS Protocol?

Each Adhering Party must submit a one-time fee of U.S. $500 to ISDA at or before the submission of this Adherence Letter. Adhering Parties should review the documents to be amended (i.e., the ISDA Master Agreements or Other Agreements) 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 an ISDA Master Agreement or Other Agreement, using a single Adherence Letter, would only pay a single adherence fee for that Adherence Letter.

Q. Can I revoke my participation in the ISDA 2021 SBS 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.

Q. If I withdraw my adherence to the ISDA 2021 SBS Protocol, could I readhere at a later date?

An Adhering Party which has withdrawn its adherence may, after the designated Annual Revocation Date, readhere to the Protocol. In such circumstances, the readherence will be effective with respect to counterparties that have adhered to the Protocol after the designated Annual Revocation Date. With respect to counterparties that adhered before the designated Annual Revocation Date, the Adhering Party’s prior adherence will continue to govern.