Open from February 25, 2021
The ISDA 2021 SBS Top-Up Protocol (the SBS Top-Up 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). Specifically, the SBS Top-Up Protocol facilitates industry compliance with rulemakings promulgated by the U.S. Securities and Exchange Commission (SEC) related to Security-Based Swaps (SBS).
In August 2012 and March 2013, ISDA opened two Protocols to facilitate industry compliance with Dodd-Frank rulemakings promulgated by the Commodity Futures Trading Commission (CFTC) (the ISDA August 2012 DF Protocol and the ISDA March 2013 DF Protocol, respectively). Parties that adhered to those previous Protocols thereby included terms in their derivatives documentation (such as an ISDA Master Agreement) to facilitate compliance with the CFTC requirements. They may in fact have created that documentation under the March 2013 Protocol (a March 2013 Protocol Master Agreement). Such documentation amended or created by the Protocols is a “Protocol Covered Agreement”.
For these parties, this SBS Top-Up Protocol is intended to enable the amendment of the terms of a Protocol Covered Agreement to address regulatory and documentation requirements applicable to security-based swap dealers and major-security based swap participants with respect to transactions in SBS. Specifically it allows the terms previously included by the parties for CFTC compliance to be “topped up” for SEC compliance.
Please refer to the "Frequently Asked Questions" for more information.
ISDA has prepared this brief summary of frequently asked questions to assist in your consideration of the ISDA 2021 SBS Top-Up 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.
1. What does the Protocol do?
The Protocol is part of ISDA’s Dodd-Frank Documentation Initiative, a core element in ISDA’s broader mission to assist the industry in implementing and complying with regulatory requirements imposed under Title VII of the Dodd–Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”). ISDA has also undertaken to assist the industry in adhering to other global regulatory requirements, including EMIR, through protocols.
In 2012, ISDA opened the ISDA August 2012 Dodd-Frank Protocol (the “ISDA August DF Protocol” or “DF Protocol”) to facilitate industry compliance with seven final rulemakings issued by the Commodity Futures Trading Commission (“CFTC”) and applicable to Swaps (as such term is defined in the Commodity Exchange Act). In March 2013, following further CFTC rulemakings, ISDA opened the ISDA March 2013 Dodd-Frank Protocol (the “ISDA March DF Protocol” or “DF Protocol 2.0”) to facilitate industry compliance with three final CFTC rulemakings applicable to Swaps.
Security-Based Swaps (“SBS”), as defined in the Securities Exchange Act of 1934 (“Exchange Act”), are subject to regulation by the Securities and Exchange Commission (“SEC”). The registration compliance date for several rulemakings applicable to Security-Based Swap Dealers, as defined in Section 3(a)(71) of the Exchange Act, and Major Security-Based Swap Participants, as defined in Section 3(a)(67) of the Exchange Act (together, “SBS Entities”), on October 6, 2021, and the related applicable transitional period and registration deadlines for SBS Entities (no later than November 1, 2021 for Security-Based Swap Dealers, and no later than December 1, 2021 for Major Security-Based Swap Participants). In anticipation of these applicable rulemakings, ISDA has prepared the Protocol.
The Protocol enables parties to Protocol Covered Agreements (as defined below) to amend the terms of such Protocol Covered Agreements to address regulatory and documentation requirements applicable to SBS Entities with respect to transactions in SBS (as defined below) by extending and supplementing agreements previously made in one or more DF Schedules (as defined below) for purposes of engaging in transactions in swaps.
The Protocol is similar to the ISDA August DF Protocol and the ISDA March DF Protocol in a number of ways. The Protocol is a multilateral contractual mechanism that allows for various standardized amendments to be deemed to be made to the relevant Protocol Covered Agreements between any two adhering parties and for certain new agreements to be entered 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). The Protocol is designed to supplement existing written agreements governing the terms and conditions of one or more transactions in SBS where the parties previously adhered to the ISDA August DF Protocol or the ISDA March DF Protocol. It 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 SBS.
The Protocol is intended to address the requirements of the following final rules (“Covered Rules”). Because the Protocol tops up previous adherences to the ISDA August DF Protocol and the ISDA March DF Protocol, the operation depends on whether a party adhered to one or both of those protocols.
For counterparties that adhered to the ISDA August DF Protocol:
- SEC, Final Rule, Regulation SBSR – Reporting and Dissemination of Security-Based Swap Information, 80 Fed. Reg. 14563 (Feb. 11, 2015);
- SEC, Final Rule, Security-Based Swap Data Repository Registration, Duties, and Core Principles, 80 Fed. Reg. 14437 (Mar. 19, 2015);
- SEC, Final Rule, Business Conduct Standards for Security-Based Swap Dealers and Major Security-Based Swap Participants, 81 Fed. Reg. 29959 (May 13, 2016);
- SEC, Final Rule, Regulation SBSR – Reporting and Dissemination of Security-Based Swap Information, 81 Fed. Reg. 53545 (Aug. 12, 2016);
- SEC, Final Rule, Recordkeeping and Reporting Requirements for Security-Based Swap Dealers, Major Security-Based Swap Participants, and Broker-Dealers, 84 Fed. Reg. 68550 (Dec. 16, 2019); and
- SEC, Final Rule, Cross-Border Application of Certain Security-Based Swap Requirements, 85 Fed. Reg. 6270 (Feb. 4, 2020).
For counterparties that adhered to the ISDA March DF Protocol:
- SEC, Final Rule, Trade Acknowledgement and Verification of Security-Based Swap Transactions, 81 Fed. Reg. 39807 (June 17, 2016); and
- SEC, Final Rule, Risk Mitigation Techniques for Uncleared Security-Based Swaps, 85 Fed. Reg. 6359 (Feb. 4, 2020).
In each case, the Protocol facilitates compliance with the SEC rules by taking the terms the parties have already agreed for compliance with similar CFTC rules, and amending those terms to reflect the equivalent SEC requirements. This Protocol does not require the parties to exchange Questionnaires or new compliance information, because it relies on the information exchanged for the previous protocols.
2. What is the structure of the Protocol?
The basic architecture of the Protocol consists of three parts:
- The Protocol terms, including forms of Adherence Letter and Revocation Notice
- Appendix 1 to the Protocol (General Agreements and Notifications; Safe Harbors), which tops up the ISDA August DF Protocol for purposes of applicability to SBS; and
- Appendix 2 to the Protocol (Calculation of Risk Valuations and Dispute Resolution; Portfolio Reconciliation), which tops up the ISDA March DF Protocol for purposes of applicability to SBS.)
Note there is no Questionnaire for this Protocol. The parts of the Protocol form a single document.
3. What agreements does the Protocol cover?
The Protocol is designed to supplement existing written agreements (including an agreement created by the ISDA March DF Protocol) governing the terms and conditions of one or more transactions in SBS. The Protocol adds notices, representations and covenants responsive to Dodd-Frank Title VII requirements that must be satisfied at or prior to the time that SBS transactions are offered and executed. 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 SBS, provided the parties previously adhered to the ISDA August DF Protocol or the ISDA March DF Protocol. See below regarding the process required for any pair of parties to amend their existing master agreement through use of the Protocol.
Agreements that may be supplemented through the Protocol are any written agreement between two parties adhering the Protocol into which any schedule to the August 2012 Supplement or the March 2013 Supplement have been incorporated pursuant to the terms of the ISDA August DF Protocol and/or the ISDA March DF Protocol (as applicable), that (i) governs the terms and conditions of one or more transactions in SBS that each such party has entered into or may enter into as principal or (ii) is an ISDA March 2013 DF Protocol Master Agreement entered into pursuant to Section 4 of the March 2013 Protocol (a “March 2013 Protocol Master Agreement”) (such agreements, “Protocol Covered Agreements”).
4. Under what circumstances would it be suitable for me to adhere to this Protocol?
If you have agreements governing the terms and conditions of one or more transactions in SBS you would like to amend with your counterparties pursuant to this Protocol (see question above), it would be suitable to use the top up approach of this Protocol only if (1) you have previously adhered to either or both of the ISDA August DF Protocol and the ISDA March DF Protocol and (2) your agreement counterparty has also previously entered into either or both of the ISDA August DF Protocol and the ISDA March DF Protocol. This Protocol will only function to top up those prior protocols (and the underlying related agreements) where you and your counterparty in fact entered into such protocols.
There may be circumstances where you may be required to comply with SEC SBS regulations even though you were not and are not required to comply with similar or equivalent CFTC swap regulations, and accordingly may not have entered into either or both of the ISDA August DF Protocol and the ISDA March DF Protocol, or circumstances where you or your counterparty determined not to enter into those protocols and instead make bilateral agreements related to the regulations covered by those protocols. In these cases, this Protocol would not be suitable.
ISDA is developing a separate “Full” or “Long Form” SBS Protocol that will address the Covered Rules addressed by this Protocol in a standalone format, not tied to the ISDA August DF Protocol or the ISDA March DF Protocol or meant to top up those protocols, which may be appropriate for some counterparties to enter into instead of or in addition to this Protocol.
5. Will adherence to the Protocol satisfy all regulatory requirements/obligations in connection with the Covered Rules?
The SEC regulations addressed by this Protocol have far-ranging implications for the derivatives market, including the terms under which counterparties are required or wish to transact in SBS. 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.
6. How do I sign up to the Protocol?
Is there a closing date for adherence to the Protocol?
The Protocol is open on March 15, 2021. 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.
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.
Do I need to take any action in ISDA Amend after adhering to the Top-up protocol?
No. There is no ISDA Amend component for the SBS Top-up Protocol so nothing further you need to do. ISDA Amend will use the Adherence Letter ID (ALID) that you provided in the SBS Top-up Protocol to produce a report for dealers that have received questionnaires for DF1 and DF2 identifying which relationships identified in those questionnaires are now topped up. You do not have to take any action for this to happen.
Can entities that are not ISDA members sign up to the Protocol?
Yes. The Protocol is open to any entity. ISDA members and non-ISDA members alike adhere to the Protocol in the same way.
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.
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.
What is the Adherence Letter ID?
An Adherence letter ID (or “ALID”) is an identification code that is unique to an adherence letter for a particular Protocol. ISDA assigns an ALID to each adherence letter for its protocols. For this Protocol, the ALID has special significance. Because this Protocol tops up adherence to the ISDA August DF Protocol and the ISDA March DF Protocol, each adhering party must enter the relevant ALIDs for their prior adherence(s), in the same capacity (principal or agent) for which for they are adhering to this Protocol.
To amend a Protocol Covered Agreement pursuant to Appendix 1 to this Protocol (which is intended to top up agreements made pursuant to the ISDA August DF Protocol), each adhering party must include in its Adherence Letter the ALID for its adherence to the ISDA August DF Protocol. If that party adhered to the ISDA August DF Protocol in two capacities (principal and agent), then it would have two separate ALIDs for those two separate adherences. In that case, if it is adhering to this Protocol as principal, it must enter the ALID for its adherence as principal to the ISDA August DF Protocol, and if it is adhering to this Protocol as agent, it must enter the ALID for its adherence as agent to the ISDA August DF Protocol.
Similarly, to amend a Protocol Covered Agreement pursuant to Appendix 2 to this Protocol (which is intended to top up agreements made pursuant to the ISDA March DF Protocol), each adhering party must include in its Adherence Letter the ALID for its adherence to the March 2013 Protocol in the relevant capacity.
IMPORTANT: If you adhered to both the ISDA August DF Protocol and the ISDA March DF Protocol and are now adhering to this Protocol, you should include BOTH ALIDs for the two previous Protocols.. Otherwise you may find that you need to adhere to this Protocol a second time. Each top up adherence letter can be used for a single entity only. You cannot top up two different entities using a single top up adherence letter.
Where do I find the Adherence Letter ID for the ISDA August DF Protocol or the ISDA March DF Protocol?
An adherence letter ID ("ALID") is a number that is generated that is specific to your Dodd Frank adherence letter. Your ALID is available on the ISDA website:
- Go to isda.org/protocol
- Go to the 2012 or 2013 Dodd Frank Protocol
- Click on “List of Adhering Parties”
- Click on “Download Protocol Data”
- Click on “Download Latest Full List”
- Your ALID is listed in Column A – “Unique ID”
If you have any issues locating your ALID you can contact Protocolmanagement@isda.org for assistance.
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.
Are there any costs to adhere to the 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 and whether that entity has previously adhered to ISDA August DF Protocol and/or the ISDA March DF Protocol in that capacity, 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.
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.
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 only be effective with respect to its counterparties that have adhered to the Protocol after the designated Annual Revocation Date.
You can also bilaterally agree to amend your Protocol Covered 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 does it mean to be a “Covered SBS Entity” in relation to Appendix 1 or Appendix 2?
“Covered SBS Entity” is separately defined in Appendix 1 and Appendix 2 to the Protocol. An entity should identify itself as a Covered SBS Entity in the adherence letter if it expects to have to register with the SEC as a security-based swap dealer (Covered SBS Entity for both appendices) or as a major security-based swap participant. If you indicate that you are not a Covered SBS Entity, but you later register, you can notify your counterparties of such registration and will then be treated as a Covered SBS Entity.