ISDA has prepared this list of frequently asked questions to assist in your consideration of the ISDA 2012 FATCA PROTOCOL (the “Protocol”)

THESE FREQUENTLY ASKED QUESTIONS DO 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.

IRS Circular 230 Disclosure: ISDA does not provide tax advice. Any discussion of US tax matters in this attachment cannot be used for the purpose of avoiding tax penalties.

What does the Protocol do?

To address the effects of the Foreign Account Tax Compliance Act (FATCA) on derivatives transactions, the FATCA working group under the North American Tax Committee drafted this Protocol to amend the ISDA Master Agreement tax provisions.

FATCA refers to U.S. Internal Revenue Code sections 1471 through 1474, which were enacted by the Hiring Incentives to Restore Employment Act of March 2010 with an effective date of January 1, 2013. The intent behind FATCA is to help the U.S. Internal Revenue Service (IRS) “combat tax evasion by U.S. persons holding investments in offshore accounts.”

Broadly speaking, FATCA requires foreign financial institutions (“FFIs”) that are either residents in FATCA Partner Countries via an Intergovernmental Agreement (“IGA”) or opt in to the FATCA reporting regime (“participating FFIs”) to report information to either their home government or directly to the IRS regarding their U.S. account holders in order to assist the IRS in enforcing U.S. taxpayer compliance and to potentially withhold 30% U.S. tax on payments made to account holders or other FFIs. Any entity which makes a payment of U.S. source income (or items considered U.S. source for FATCA purposes) must consider whether the payment is subject to FATCA withholding.

U.S. entities, both financial and non-financial, that make payments of most types of U.S. source income to non-U.S. persons will be impacted as they may now be required to withhold a 30% tax on the payments to those non-U.S. persons. This will require the U.S. entities to collect and maintain documentation on those non-U.S. persons and also track whether those persons are classified as subject to withholding under FATCA.

FATCA has an impact on derivatives transactions as it imposes a 30% withholding tax on an expansive list of payments, including payments of gross proceeds to non-participating FFIs and other payees that are not FATCA compliant.

The FATCA provision in the Protocol carves out FATCA withholding tax from the definition of “Indemnifiable Tax” in the ISDA Master Agreement. The impact of the proposed language is to place the FATCA withholding tax burden on the recipient of the payment. The rationale is that the recipient is the sole party that has the ability to avoid the withholding tax by complying with the FATCA rules; therefore, the recipient should be the party burdened with the FATCA withholding tax if it chooses to not comply. Additional FATCA-related issues are also discussed in the ISDA FATCA market education note.

Under current law, grandfathering of derivatives transactions from FATCA withholding expires December 31, 2012. Since transactions executed January 1, 2013 could potentially be subject to FATCA withholding beginning as early as January 1, 2014, there is some urgency to amending agreements to address FATCA withholding prior to that January 1, 2013 date. Many counterparties in the market have expressed concerns with trading under ISDA Master Agreements that require the Payor to gross up for the FATCA non-compliance of the Payee. In order to prevent market disruption, parties are strongly encouraged to adhere to the Protocol as quickly as possible to provide their counterparties with comfort in advance of the 2013 effective date.

Is there a closing date for adherence to the Protocol?

There is currently no cut off date for adherence, but 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.

We have more than one fund and therefore more than one DTCC account number. Will we need to submit more than one Adherence Letter?

No. You can list numerous DTCC numbers on one adherence letter.

SPECIAL CONSIDERATIONS FOR INVESTMENT/ASSET MANAGERS

What if I am an investment or asset manager, not all of my discretionary management agreements permit me to amend my client’s agreements? If you are an investment or asset manager and act on behalf of multiple funds, you have the following options:

• • If you have authority to adhere on behalf of all of your clients you may do so by indicating the following in the signature block: “Investment/Asset Manager, acting on behalf of the funds and accounts listed in the relevant Agreement (or other agreement which deems an Agreement to have been created) between it (as agent) and another Adhering Party [and acting on behalf of the funds and accounts listed in the appendix to this Adherence Letter in relation to the relevant Agreement (or other agreement which deems an Agreement to have been created) between such fund or account and another Adhering Party]”.If you wish to adhere in this way, you must ensure that you have the authority to do so from all clients on whose behalf you enter into credit derivative transactions covered by the Protocol
  • If you do not have authority from all of your funds, you can adhere on behalf of those funds whose permission you have by indicating the following in the signature block:

“[Name of Investment/Asset Manager], acting on behalf of the funds and accounts specifically identified in the appendix to this Adherence Letter in relation to the relevant Agreement (or other agreement which deems an Agreement to have been created) between it (as agent) and another Adhering Party.”

The appendix to your Adherence Letter can either name the clients or funds, or identify them with a unique identifier which will be known and recognized by all other Adhering Parties with which the relevant funds or clients have entered into Protocol Covered Transactions. The appendix to your letter will be posted on the ISDA website with your Adherence Letter either listing the funds or if you have more than ten funds, we will add a link to a pdf document listing these funds. Any ISDA Master Agreements which you enter into on behalf of funds that are not listed in your adherence letter(s) will not be covered by the Protocol, If you wish to implement the changes contained in the Protocol, then you and the relevant counterparty would need to enter into a bilateral agreement to amend those ISDA Master Agreements to include those changes.

• • To the extent that you do not have authority from all of your funds and you are not able to disclose your clients whether by name or a unique identifier, you cannot adhere to the Protocol on behalf of any fund that you cannot identify. Your option in these circumstances is to enter into bilateral amendment agreements with each relevant counterparty listing the funds whose ISDA Master Agreement(s) with that counterparty will be amended by incorporating the amendments made by the Protocol
  • To the extent that you add a fund to an umbrella master agreement after the date you adhere to the Protocol on behalf of your clients (whether that fund was an existing client on or a client acquired after the Implementation Date) that fund will be added to that umbrella master agreement as amended by the Protocol.

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 and generated by the Protocol Management webpage.

Are there any costs to adhere to the Protocol?

Yes. Each party adhering to the Protocol must submit a one-time fee of U.S. $500 to ISDA at or before the submission of its Adherence Letter. Each individual legal entity is considered a separate Adhering Party for this purpose and would need to pay the adherence fee, except that an agent that adheres on behalf of one or more underlying principals for whom it has entered into an ISDA Master Agreement, using a single Adherence Letter, would only pay a single adherence fee for that Adherence Letter. Where multiple legal entities within a group structure have separate ISDA Master Agreements, each legal entity would need to adhere to the Protocol and pay the adherence fee unless an agency adherence can be used as described above. If an entity adheres as agent on behalf of other entities, this should be reflected in the signature block and the underlying entities should be listed in the Appendix to the Adherence Letter.

Can I revoke my participation in the Protocol?

No. Once an Adherence Letter has been accepted by ISDA, an Adhering Party is bound by all amendments with other parties that have already adhered to the Protocol or, subject to the discussion below, that adhere before a designation of the Annual Revocation Date.

An Adhering Party may, at any time during the period from October 1 to October 31 of a calendar year, deliver to ISDA a notice specifying the Annual Revocation Date as its cut-off date in respect of amendments with future Adhering Parties. The effect of such a letter will be to withdraw adherence for future Adhering Parties as of December 31 in that calendar year. Although amendments already made will not be revoked, any subsequent adherence by new Adhering Parties after the designated Annual Revocation Date will not bind the party that has submitted a Revocation Notice.

You can, however, bilaterally agree to amend your Covered Master Agreement with your counterparty (the other Adhering Party) and any such subsequent amendments will supersede those made by the Protocol to the extent that they are inconsistent.