On March 29, 2022, ISDA® published its 2022 Russia Additional Provisions Protocol (Russia sanctions protocol), which enables parties to amend the terms of their outstanding credit derivatives agreements, including credit default swap (CDS) contracts that reference sanctioned Russian entities as reference entities or that reference an index that includes the sanctioned Russian entities, to exclude from those contracts debt issued by the sanctioned Russian entities after February 24, 2022. In connection with the protocol, ISDA prepared a list of frequently asked questions (FAQs) to assist parties with the protocol.

The sanctioned Russian entities are currently:

The Russian Federation and Gazprom were included in sanctions orders from Canada, the European Union, Japan, Switzerland, the United Kingdom, and the United States (collectively, the Russian sanctions orders), which generally prohibit transactions in future issued debt obligations of the Russian Federation or Gazprom.

The Russia sanctions protocol allows parties to update their legacy transactions to apply the new terms contained in the Additional Provisions for Certain Russian Entities: Excluded Obligations and Excluded Deliverable Obligations (Russia sanctions provisions) published by ISDA on March 25, 2022 (see Legal Update, ISDA Publishes 2022 Russian Sanctions Additional Provisions Booklet to Exclude Certain Obligations from Derivatives Contracts). The Russian sanctions provisions define these obligations as Excluded Obligations and Excluded Deliverable Obligations, excluding from CDS contracts for which both parties have adhered to the Russia sanctions protocol debt issued by the sanctioned Russian entities after February 24, 2022, referred to as restricted debt. Under the protocol, the debt of the sanctioned Russian entities that is eligible to trigger a credit event under the contract or be delivered in a CDS auction is explicitly limited to debt that was issued before February 24, 2022.

According to ISDA, no new debt obligations have been issued by the sanctioned Russian entities that would be excluded by the Russia sanctions protocol or the Russia sanctions provisions. ISDA notes, however, that it is possible that other debt obligations that are restricted debt could be issued. ISDA provides that the Russia sanctions protocol is necessary, along with the Russia sanctions provisions, to provide smooth operation of the CDS markets and the CDS auction process, ensuring that the sanctions do not prevent legacy transactions from being included in any CDS auction that might be held in future.

While ISDA has published the Russia sanctions provisions, ISDA notes that it has not yet published a new version of the ISDA Credit Derivatives Physical Settlement Matrix, which will add the Russia sanctions provisions into the relevant ISDA transaction types for new trades. ISDA states that it will publish the new version of the physical settlement matrix on the anticipated April 25, 2022 implementation date of the Russia sanctions protocol. According to ISDA this action will ensure new trades and legacy trades apply the new terms on the same date.

For additional ISDA Russian sanction information, visit the ISDA Russian Sanctions and Market Impacts InfoHub (see Legal Update, ISDA Creates InfoHub Webpage on Derivatives Market Impact of Russian Sanctions).

For information on ISDA documents, including ISDA protocols, see Practice Note, ISDA Documents: Overview (US).

Update: The cutoff date for adherence to the protocol has been extended from April 20, 2022 to Wednesday, April 27, 2022 at 12:00 p.m., New York time and the revocation deadline has been extended from April 21, 2022 to Thursday, April 28, 2022 at 12:00 p.m. New York time, which is one New York business day after the cutoff date. The implementation date has been extended from April 25, 2022 to Monday, May 2, 2022.