ISDA March 2013 DF Protocol

Open from March 22, 2013

ISDA has prepared this brief summary of frequently asked questions to assist in your consideration of the ISDA March 2013 D-F Protocol (the “Protocol”)

THIS FREQUENTLY ASKED QUESTIONS DOES 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.

Please Note: ISDA Amend will be available for questionnaire submission on May 24. If you have not already done so, onboard onto ISDA Amend now (sign up here), so you will be ready when the questionnaire is available.

When do I need to adhere to the Protocol?

The Protocol is open on March 22, 2013. 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 Protocol Participant 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, each Protocol Participant must print, 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 Participant will receive an e-mail confirmation of the Protocol Participant’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, date 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.

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 is an identification code that is unique to your adherence letter.  If you are using ISDA Amend to deliver your questionnaires, there will be a section where you will be asked, (a) if you have submitted an adherence letter and; (b) to enter the Adherence Letter ID.  This code matches your adherence letter with your questionnaire(s).  You cannot complete matching on the ISDA Amend platform without this number. 

Where do I find the Adherence Letter ID?

When your adherence letter has been accepted by ISDA administrators, an email is automatically sent to you (from “IT Admin”) which contains a URL that will take you to the section of the ISDA website where the ID code is listed, specifically the protocol shopping cart.  If you do not have this email then use the reference number/contact email address combination under “View Open Order”, which will also take you to the shopping cart.  If you don’t have your reference number you can click on the “Cant find the confirmation number” link available and ISDA will send this to you.   Please remember to check your junk email if you are having trouble locating emails.

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. 

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”). 

To this end, has, among other things, published a standard set of amendments to facilitate updating of existing swap relationship documentation for Dodd-Frank compliance purposes and other standard industry documentation, such as general and product specific risk disclosures, and agreements allowing parties to apply selected Dodd-Frank compliance provisions to their trading relationship, to assist regulated swap entities in satisfying their on-going regulatory requirements and to allow other entities to continue trading with regulated swap entities.

ISDA envisions the possibility for multiple protocols to the extent future final rules requiring documentation amendments are subject to inconsistent compliance dates.  ISDA will work with our members to develop a coordinated and efficient process to amend documentation in a timely manner. ISDA also expects to conduct similar reviews for documentation changes mandated by legislative developments in other countries and regions as these develop.

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 Swaps.  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 Swaps.  The Protocol also allows adhering parties to enter into an agreement to apply selected Dodd-Frank compliance provisions to their trading relationship in respect of Swaps that are not (i) governed by a written agreement that exists at the time of execution of the Swap, which provides for, among other things, the terms governing the payment obligations of the parties in respect of such Swap, or (ii) agreed by the parties to be cleared on a clearing organization. (the “ISDA March 2013 DF Protocol Master Agreement”). 

Unlike with previous ISDA protocols where amendments were effected solely with delivery of an adherence letter by each party to the underlying document to be amended (i.e., a master agreement), this Protocol will include additional bilateral delivery requirements in order to effectuate the amendments. Each party that submits an Adherence Letter must also deliver a completed Protocol Questionnaire to each relevant counterparty for the amendments to be effective. As a result of these additional bilateral delivery requirements, ISDA together with Markit have developed a technology-based solution (the “ISDA Amend by Markit Solution”) to automate the information-gathering process and provide sharing of submitted data and documents to permissioned counterparties. 

The Protocol is intended to address the requirements of the following final rules (“Covered Rules”):

CFTC, Final Rule, Confirmation,      Portfolio Reconciliation, Portfolio Compression, and Swap Trading      Relationship Documentation Requirements for Swap Dealers and Major Swap      Participants, 77 Fed. Reg. 55904 (Sept. 11, 2012);

CFTC, Final Rule, End-User      Exception to the Clearing Requirement for Swaps, 77 Fed. Reg. 42559      (July 19, 2012); and

CFTC, Final Rule, Clearing Requirement Determination Under Section 2(h) of the CEA, 77 Fed. Reg. 74284 (Dec. 13, 2012).

Protocol Structure

In order to comply with rules adopted by the CFTC under Title VII of Dodd-Frank that implement new requirements for Swap trading relationship documentation between CFTC-regulated entities (i.e., swap dealers (“SDs”) and major swap participants (“MSPs”)) and their counterparties (such regulations, the “STRD Rules”).[1], CFTC-regulated entities may need to supplement existing documentation or enter written agreements that provide for, among other things, the terms governing the payment obligations of the parties in respect of such Swap.   The STRD Rules require CFTC-regulated entities and their counterparties to agree in writing on (i) a process “for determining the value of each swap at any time,”[2] (ii) either an alternative method for determining, or a dispute resolution process regarding, such valuations,[3] and (iii) a portfolio reconciliation process.[4]

 

In order to assist SDs/MSPs and their counterparties in complying with the STRD Rules, ISDA developed a relatively efficient approach to supplementing existing documentation for compliance with the STRD Rules intended to minimize disruption to the marketplace.  The Protocol’s architecture and process was  designed to accommodate two fundamental objectives:  Selective access to information (i.e., who is given permission to see certain information) and variation in the document provisions to which a party is bound (either because of the type of counterparty or because the provisions are optional). The process as developed is necessarily more complex than multilateral amendments that have been accomplished via past ISDA protocols.  However, we believe it will reduce the need to amend documents outside of the protocol process and also provides sufficient flexibility to accommodate additional information delivery and variation in the document provisions to which a party is bound that may arise as additional rules are finalized. Moreover, in developing this Protocol, ISDA has been mindful that any response to the current regulatory environment will likely need to be revisited once further Dodd-Frank rulemakings, most notably rules regarding margin and collateral segregation, are finalized.

The basic architecture consists of four documents: (I) an Adherence Letter, (II) the Protocol Agreement, (III) the Protocol Questionnaire and (IV) the DF Supplement.  Additional information on the content of each of these documents is discussed in more detail in the ISDA March 2013 Dodd-Frank Protocol summary at: http://www2.isda.org/functional-areas/protocol-management/open-protocols/



[1]     77 Fed. Reg. 55904 (Sept. 11, 2012).

[2]     CFTC Rule 23.504(b)(4)(i) (requiring documentation between SDs and other SD/MSPs, financial entities and other parties that request such documentation to include agreement on the process, for determining the value of each swap ”at any time” during the term of the swap, for purposes of compliance with relevant margin and risk management requirements).

[3]       CFTC Rule 23.504(b)(4)(ii) (requiring documentation to include either (A) alternative methods for determining the value of a swap in event of unavailability/failure of a valuation input; or (B) a dispute resolution process by which valuation of the swap will be determined for purpose of complying with this provision).

[4]       CFTC Rule 23.502 (requiring (i) written agreements between SD /MSPs and other SD/MSPs on terms for engaging in portfolio reconciliation and (ii) SD/MSP policies and procedures for entering into written agreements for engaging in portfolio reconciliation with non-SD/MSP counterparties).