Original EMU Protocol (1998)

Following closely on the heels of the historic decision by 11 European countries to abandon their national currencies in favor of a new single European currency, the euro, ISDA launched its EMU Protocol on May 6, 1999. The EMU Protocol is an innovation and a first for an industry trade group: standardized provisions that address a range of issues related to European Economic and Monetary Union and the emergence of the euro, and an efficient, low-cost means to include them in existing documentation. The success of this groundbreaking effort is reflected in the fact that more than 1,100 firms became adhering parties to the Protocol.



Please note that this FAQ page will be updated over time. Last updated 6 August 1998.

  • Introduction and Overview of Protocol
  • Protocol Mechanics
  • Protocol Provisions
  • ISDA's Role and How to Participate

Introduction and Overview of Protocol 

Why is the ISDA EMU Protocol necessary?

The introduction of the Euro raises certain issues in relation to derivatives transactions entered into under ISDA Master Agreements, where the transaction was agreed before the start of the third stage of EMU but continues after 1 January 1999. There is a strong market consensus that simple amendments to the terms of these transactions would help to eliminate any remaining uncertainty. Through ISDA's EMU Documentation Task Force standardised amendments have been drafted. These are as follows:

  • Confirmation of continuity of contract;
  • Confirmation of applicable successor price sources;
  • Clarification of payment netting between participating currencies;
  • New and amended definitions for Euro, ECU, ECU Settlement Day, Business Day and Banking Day; and
  • Allowance for adjustment to bond options in the light of redenomination of underlying bonds.

However, to amend all affected contracts to incorporate these standard amendments would be extremely time consuming and expensive if undertaken through bilateral negotiation between all counterparties. ISDA is therefore sponsoring a multilateral amendment mechanism - the ISDA EMU Protocol.

How does the ISDA EMU Protocol work?

The Protocol reflects an innovative procedure which allows for the amendment of ISDA Master Agreements in light of the introduction of the Euro. It builds on the simple principle that parties to such agreements may make an offer to one or more of their counterparties to amend any outstanding agreements that are affected by EMU.

A bank, corporation or other derivative user would indicate its participation in the Protocol arrangement by sending an adherence letter (a signed original, together with a conformed copy) to ISDA's office in London or New York. This allows the firm to specify which of five standardised amendments it wishes to make with other Protocol adherents. By submitting the adherence letter, the firm agrees that each outstanding Master Agreement is amended in all areas where an election made in its adherence letter matches that made in an adherence letter submitted by one of its counterparties. The amendment and adherence process, among other matters, is set out in the Protocol itself, which is published on the Association's web site, along with a form of the adherence letter.

Names of adhering parties are listed on ISDA's web site, where there is access to scanned copies of adherence letters. For security reasons only the conformed copies of adherence letters will be displayed. Protocol adherents therefore simply monitor the web site to determine which of their counterparties have adhered and to check for matching elections.

The Protocol will be open for adherence between 6 May and 30 September 1998. This allows three months before the start of Stage 3 of EMU for any follow-up documentation and operations work.

Protocol adherents may elect some or all of the standardised amendments, may send subsequent adherence letters covering new amendments and may specify a cut off date in respect of their own adherence. Protocol adherents may not revoke agreement with matches once they are made and may not vary the standardised clauses (except of course through direct bilateral negotiation and agreement).

Whom is the ISDA EMU Protocol designed for?

The Protocol is designed for all types of users of derivatives: banks, corporations, governments, investment firms, insurance companies, pension funds and other firms with derivatives contracts documented using ISDA documentation that may be affected by EMU. The Protocol saves your firm money by cutting down on the cost and time involved in negotiating and agreeing to contractual changes bilaterally with all your counterparties. It provides an easy way to monitor changes through the web site. It reflects market consensus on standardised changes to ISDA documentation in light of EMU.

Does the Protocol address all my firm's EMU documentation concerns?

No! Use of the Protocol is designed to be used as part of an overall legal and documentation EMU changeover plan. For example, firms still need to monitor adherence, match adherence letters, satisfy themselves as to signing authority, and negotiate with partly matched and non-adhering counterparties where necessary. However, even with these steps and procedures, the Protocol provides for significant cost savings over bilateral negotiation.



Protocol Mechanics

Why is there a limited adherence period for the Protocol?

The adherence period ends on 30 September to allow time to make the systems changes following from the amendment of agreements and to negotiate and agree to changes bilaterally with any non-adherents or partial matches.

Are all my ISDA transactions covered by the Protocol?

All outstanding transactions governed by any ISDA Master Agreement between two adherents will be amended to the extent adherence letters match and to the extent that the matched amendments apply to those transactions.

Will the Protocol allow my firm to amend Master Agreements executed after the date of adherence?

Because adherence to the Protocol by two parties to an ISDA Master Agreement amends the ISDA Master Agreement between them, it follows that the Protocol will only be effective in respect of ISDA Master Agreements actually existing at the time the second of the parties adheres. It would not be possible to amend something which does not currently exist. However, the Annexes to the Protocol may be used in connection with a pending or unexecuted ISDA Master Agreement by making express reference to them in the Schedule to the agreement when it is executed. ISDA has developed language to allow for the incorporation of Protocol Annexes.

Will the Protocol be effective in respect of transactions entered into after the date of adherence?

As noted above, the Protocol procedure itself is only relevant for ISDA Master Agreements existing at the time of adherence. However, where new transactions are entered into after the date of adherence pursuant to an ISDA Master Agreement existing at the day of adherence, those transactions will be subject to the amendment provisions contained in the Annexes to the Protocol. This is, of course, subject to any limitations contained in the Annexes themselves (Annex 2, for example, is only relevant for 'Legacy Transactions').

Can only English and New York law contracts be covered by the Protocol?

No. The Protocol is intended to cover ISDA Master Agreements, regardless of the governing law of the agreement.

Can my firm modify the wording of the Protocol or the substantive clauses?

No. Any changes to the standardised wording set out in the Protocol or to the standard form adherence letter will be considered invalid. (Counterparties can, of course, negotiate and agree any changes bilaterally outside the scope of the Protocol. The Protocol in no way inhibits this freedom of contract.)

Does my firm have to accept all of the Protocol provisions?

While it is expected that most adherents will opt for all five of the standardised amendments, firms do not have to accept them all and the adherence letter allows adherents to elect one or more of the amendments. A decision not to elect one or more of the standardised amendments should not be understood to constitute a rejection of the principles embodies in those amendments. Such a decision may be based on an assessment that existing statute or other law is sufficient.

Does participating in the Protocol create any "negative inferences"?

The Protocol is designed to amend existing contracts and in a number of cases merely confirms the position under the contract. No negative inferences should be drawn from the fact that other contracts do not include such provisions. A decision to elect a particular amendment should not be understood to suggest that the position at law would otherwise give rise to a different result. It may be that parties have chosen to deal with the issue within the four corners of their contracts.

Can my firm revoke its participation in the Protocol?

Once an adherence letter has been accepted by ISDA, a firm is bound by all amendments elected by way of the matching procedure with counterparties which have already adhered to the Protocol or which adhere before the end of the Protocol adherence period, 30 September.

However, a firm may send a further notice to ISDA, specifying an earlier cut-off date in respect of their own adherence. The effect of such a letter will be to withdraw adherence as of the future date specified. Although amendments already made will not be revoked, any subsequent adherence by one of the firm's counterparties will be ineffective in respect of an ISDA Master Agreement between them.

Is ISDA providing accompanying legal opinions on the Protocol?

ISDA's London and New York counsel have prepared legal opinions on the effectiveness of the Protocol arrangement under English and New York law. Copies of these opinions are available here. Other local ISDA member groups are discussing local law enforceability.

How can I check the signing authority of other Protocol adherents?

For security reasons, adherence letters on the ISDA web site will have signatures conformed into type and signing authority information will not be displayed. Any supporting documents delivered to ISDA will not be made available (except in special cases). However, should firms wish to take steps to ascertain signing authority, the posted adherence letter will include a contact name and details.

Can my firm get copies of supporting documents or hard copies of adherence letters?

Should firms wish to obtain hard copies, each adherence letter posted on ISDA's web site will include a contact name and details of the person who can send them these documents. In special circumstances only (e.g., litigation), ISDA can provide certified copies of the documents held.

Will the Protocol affect any credit support agreements?

The Protocol is designed to leave credit support agreements unaffected. Parties should, of course, consider this issue when adhering to the protocol and take any additional steps considered necessary.

Can I use one adherence letter for all my firms' affiliates?

No. A separate adherence letter should be submitted for each legal entity adhering to the Protocol. This is to ensure that all adherence letters are submitted in the same form (an adherence letter submitted in respect of more than one legal entity would require redrafting in at least two ways) and to preserve a straightforward mechanical process of administration.

Protocol Provisions

What changes will the Protocol make to my ISDA contract and transactions?

The Protocol only amends existing contracts by way of the standardised provisions where adherence letters match. The five possible areas of amendment are:

  • Confirmation of continuity of contract;
  • Confirmation of applicable successor price sources;
  • Clarification of payment netting between participating currencies;
  • New and amended definitions for Euro, ECU, ECU Settlement Day, Business Day and Banking Day; and
  • Allowance for adjustment to bond options in the light of redenomination of underlying bonds.

Is the continuity language necessary?

While continuity of contract legislation has been adopted in the EU and some other jurisdictions (including New York), the continuity provision:

  • Clarifies the position for other jurisdictions;
  • Confirms the provisions of EU and New York law; and
  • Deals with continuity within the four corners of the contract.

What will happen to the reference rates in a derivatives contract if Annex 2 is elected?

The price sources provision of the Protocol is designed to address cases where national currency reference rates disappear or change.

In a number of cases, domestic rates for participating currencies are due to disappear and be replaced by a Euro rate for the whole euro zone: Euribor. The rates switching over to Euribor include French Franc Pibor and Deutsche Mark Fibor. Also, overnight effective rates, such as French Franc TAM, will be replaced by the Euro overnight rate, EONIA. (BBA Libor rates will continue to be published for national currencies, but will be the same as Euro Libor.)

The price sources provision of the Protocol is designed to prevent any confusion over the switch to successor rates and to avoid over-reliance on reference banks. It therefore confirms that contracts should continue to function in the case of changing price sources by:

  • Using the new rate appearing on the existing screen page in place of the old rate;
  • If not present, using the officially designated successor rate;
  • If not designated, using the Euribor screen page;
  • If not available, using reference banks; and
  • The provision also clarifies that existing day count conventions and fixing periods shall continue to apply.

The clause in no way constrains or limits any firm with regard to choice of price source for new Euro deals: ISDA will provide separate definitions for both Euribor (the domestic Euro rate) and euro Libor (an offshore rate) for firms to employ as they wish.

What changes are made concerning payment netting?

Without the amending language proposed, the current wording of Section 2(c) of the ISDA Master Agreement is expected to require netting of payments in participating currency units which were not the same currency prior to the introduction of the Euro. As the market consensus is that back offices will not be ready for such payment netting between participating currency units, the amendment overrides payment netting in this limited case.

What changes are made to ISDA definitions for legacy deals?

The Protocol introduces a definition of the Euro and makes standard changes to the definitions of ECU, ECU Settlement Day, Business Day and Banking Day as they are used in certain ISDA definitional booklets.

What changes are made for bond options?

In cases where a bond is redenominated into Euro, the economic value of a bond option may be affected due to changes in conventions or renominalisation of principal amounts. This may require changes to strike prices or cash payments. The standard amendment under the Protocol empowers calculation agents to make necessary adjustments.

ISDA's Role and How to Participate 

What is ISDA's role in the Protocol?

ISDA acts as an agent for participating firms. It will receive adherence letters, update the web site and scan conformed adherence letters. The Association also publishes the Protocol and provides information about the arrangement.

How can my firm participate in the ISDA Protocol?

Firms can participate by downloading all necessary information from the ISDA web site and then submitting an adherence letter, as well as a conformed copy of that adherence letter, to either ISDA's London or New York office.

Are parties required to provide evidence of authority to ISDA?

No. Parties can provide evidence of authority to ISDA if they choose, but are not required to do so.

What will ISDA do with evidence of authority submitted to it?

ISDA will hold any evidence of authority in its files for safekeeping. Copies of this evidence of authority will only be provided in special circumstances, such as litigation. Parties are encouraged to contact their counterparties directly if they require such evidence for their files. Each adhering party will provide in their adherence letter details of a person to contact regarding such information.

How much does the Protocol cost?

There is a flat charge of $500 for adherence. Each legal entity requires a separate adherence letter.

How can I get a copy of the ISDA EMU Protocol?

Copies of the Protocol, the adherence letter and information about ISDA's role and other aspects of the Protocol are available here.