What is happening to ISDA documentation?

Transcription

1 What is happening to ISDA documentation? Aron Berket Dirk-Jan Gerrits Rezah Stegeman FMLUS - 17 May 2018

2 Programme 1. Recent developments 1. Benchmarks 2. Settled-to-market 3. MiFID2 4. VM Requirements FX Forwards 2. Upcoming developments 1. Extended moratorium periods 2. Phase 4/5 IM documentation 3. Brexit 1. Impact on trading relationships 2. Impact on the law governing ISDA documentation 1 /

3 Recent developments

4 Benchmarks Which Document? 2006 ISDA Definitions Fallback Supplement (new) What will be changed? Fallbacks already exist in Definitions Strengthening via a voluntary supplement to Definitions Identified fallbacks for IBOR trades will be incorporated into Definitions, spelling out alternative rates (RFRs + spread) Impact? Only applicable to trades after 1 Jan 2018 A number of fallbacks Final fallback: If no replacement, then no fault termination Protocol? Parties to agree on certain optionalities? 3 / B_LIVE_EMEA2: v1

5 Settled-to-market Which Document? What will be changed? ISDA/FOA Client Cleared OTC Derivatives Addendum Switch from Collateralised-to-market -> Settled-to-market Daily settlement rather than collateralisation Results in reduction of assets Impact? Economically no difference Beneficial impact on leverage ratio of clearing brokers Pricing benefit? Amendment to agreement 4 /

6 MiFID2 impact on clearing documentation Which Document? Clearing broker documentation (e.g. ISDA/FIA Addendum) Execution broker documentation (e.g. ISDA/FIA CDEA) What has changed? MiFID2/MiFIR RTSs 2017/589 (RTS 6), 2017/582 (RTS 26) and 2017/2155 (indirect clearing) Impact? 2017 CDEA and ISDA/FIA Model Provisions Annual performance review Agreement on limits Indirect clearing Straight-through-processing OTC or ETD 5 / B_LIVE_EMEA2: v1

7 VM Requirements FX Forwards Which Document? 1995/2016 English law Credit Support Annex (CSA) What has / will be changed? BCBS-IOSCO UMR Rules EMIR Margin RTS EMIR Refit Impact? Physically settled FX Forwards will (potentially) not be subject to the EMIR VM requirements Where neither counterparty is an investment firm FX Swaps remain subject to UMR Position AFM and DNB? 6 /

8 Upcoming developments

9 Commission reforms extend moratorium periods Which Document? ISDA Master Agreement ISDA Resolution Stay Protocols What will be changed? Pre resolution moratorium vs In resolution moratorium Suspension period of 5 working days CCP s and compensation schemes not to be affected Impact? Unclear suspension of payment obligations Mismatch in relation to cleared transactions Potential consequences for netting arrangements 8 / B_LIVE_EMEA2: v1

10 Next Generation of ISDA Regulatory Initial Margin Documentation Which Document? ISDA Credit Support Documentation Account Control Agreement Additional Security Documents What will be changed? Implementation EMIR Initial Margin Requirements for Phase 4 and Phase 5 are imminent (September 2019/2020) Credit Support Documentation to be aligned with needs of Phase 4 and Phase 5 entities Impact? Variety of additional credit support documentation (Possibly) extensive negotiations Issues under international private law 9 /

11 IM Documentation Architecture Phase I IM (English law / UK law) Phase IV/V IM (applicable law) Other custodians Euroclear/Clearstream Other custodians Phase 1 IM CSA/CSD ICSD Collateral Transfer Agreement Next Gen Collateral Transfer Agreement Account Control Agreement Belgium / Luxembourg Security Agreement Security Agreement Membership Documents Account Control Agreement Custody Agreement 10 / B_LIVE_EMEA2: v1

12 Brexit

13 Brexit impact on trading relationships Which Document? All (ISDA Master Agreement, Novation Agreement, ISDA 2016 VM CSA, CDEA and clearing agreement) Novation agreement (added) What will be changed? Impact? If crossborder licence for brokers, not much If non-recognition of UK CCPs, create access to EU CCPs If broker uses EU hub, relationship to be continued under new documentation (+ possibly novation) If broker uses EU hub and legacy trades; remain in UK, split book (lack of netting) novated to EU hub, converted to new trades that are subject to 2016 VM CSA (re)negotiation of all agreements if dealings with new EU hub 12 /

14 Brexit governing law of the ISDA Master Agreement Which Document? What will be changed? ISDA Master Agreement (English law) ISDA Credit Support Annex (English law) EU regulation may no longer be applicable, e.g.: Brussels I (Recast) Rome I BRRD Impact? Enforceability of foreign judgements and intervention measures require amendments to the ISDA Master Agreement ISDA prepares French and Irisch law governed ISDA Master Agreements as an alternative 13 / B_LIVE_EMEA2: v1

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