ISDA Bilateral Agreement to Amend Certain Qualified Financial Contracts

The International Swaps and Derivatives Association (ISDA) recently introduced a bilateral agreement to amend certain qualified financial contracts (QFCs). This new agreement will have significant implications for market participants and will affect the way they negotiate and execute QFCs.

QFCs are financial contracts that are used extensively in the derivatives market. These contracts include master agreements, credit support agreements, and other similar documents. The ISDA bilateral agreement focuses on amending existing QFCs to comply with new regulations that have been introduced in response to the 2008 financial crisis.

The main objective of the new ISDA bilateral agreement is to ensure that QFCs are capable of being “stayed” or halted in the event of the default of a counterparty. The ability to stay QFCs is a critical tool that regulators can use to prevent the cascading effects of a major financial institution’s collapse. The new rules require all major financial institutions to have in place plans for the resolution of a failing entity, and this includes implementing measures to ensure that QFCs can be stayed.

The ISDA bilateral agreement goes beyond the initial requirements imposed by the regulations. It provides a standard set of clauses that can be included in QFCs to ensure compliance with the new rules. The agreement is designed to be flexible so that market participants can tailor the clauses to meet their specific needs.

The introduction of the ISDA bilateral agreement will have a significant impact on the derivatives market. Market participants will need to adapt their existing QFCs to comply with the new rules. This will require careful negotiation and agreement between counterparties. The new clauses will also need to be carefully drafted to ensure that they are capable of being enforced.

In conclusion, the ISDA bilateral agreement to amend certain QFCs is a significant development in the derivatives market. It will enable market participants to comply with new regulations that require QFCs to be capable of being stayed in the event of a counterparty default. The agreement provides a standard set of clauses that can be used to ensure compliance, but careful negotiation and drafting will be required to tailor the clauses to meet specific needs.