In November, 18 major U.S., European and Japanese swap dealers agreed to amend their ISDA contracts to provide for the delay of early termination rights via the new ISDA Resolution Stay Protocol, which was developed by ISDA in coordination with the Financial Stability Board.  The protocol imposes a stay on early termination rights within standard ISDA derivatives contracts between the 18 dealers in the event that one of the dealers is subject to an insolvency resolution action.

In addition, banking authorities around the world are developing new rules that would prevent banks from entering into swap agreements with customers unless their contracts include an “early termination delay” provision.  The planned rules would expand the voluntary agreement that the 18 banks have adopted and extend the reach of that agreement to counterparties by barring large banks from entering into transactions that do not include the targeted protections.

In the U.S., the Federal Reserve intends to issue rules in the months ahead that would prohibit bank-holding companies from entering into contracts with counterparties that do not include the 48-hour stay.  Regulators in other countries involved in negotiating the voluntary bank agreement are expected to enact similar rules.