ISDA® and IHS Markit Launch ISDA Amend 2.0 to Assist with Margin Compliance and Resolution Stay | Practical Law

ISDA® and IHS Markit Launch ISDA Amend 2.0 to Assist with Margin Compliance and Resolution Stay | Practical Law

ISDA and IHS Markit launched ISDA Amend 2.0, designed help market participants comply with new margin requirements for uncleared derivatives and manage relationships for the ISDA Resolution Stay Jurisdictional Modular Protocol (JMP)..

ISDA® and IHS Markit Launch ISDA Amend 2.0 to Assist with Margin Compliance and Resolution Stay

by Practical Law Finance
Published on 18 Aug 2016 • International, USA (National/Federal)
ISDA and IHS Markit launched ISDA Amend 2.0, designed help market participants comply with new margin requirements for uncleared derivatives and manage relationships for the ISDA Resolution Stay Jurisdictional Modular Protocol (JMP)..
On August 4, 2016, ISDA® and IHS Markit announced the launch of ISDA Amend 2.0. ISDA Amend supports compliance for various Dodd-Frank and EMIR rules and protocols, allowing parties to easily access and exchange documentation needed for compliance. The new functionality built into ISDA Amend 2.0 is designed to assist market participants with:
In both cases, the Amend 2.0 functionality assists parties by tracking and managing elections as well as facilitating the exchange of adherence information.
ISDA and IHS Markit hosted an informational webinar on August 11, 2016, outlining the new functionality of ISDA Amend 2.0. A recording of the webcast, as well as other ISDA and IHS Markit webcasts, are available on the ISDA Amend website.
For general information on ISDA protocols, see Practice Note, ISDA Documents: Overview (US): ISDA Protocols.

ISDA Amend 2.0 and Margin Regulations for Uncleared Derivatives

In an effort to limit counterparty and systemic risk, regulators have begun adopting initial margin (IM) and variation margin (VM) regulations for derivatives that are not cleared by a clearinghouse. Compliance with these rules generally requires that parties either update their existing ISDA collateral documentation or execute completely new documentation (see Practice Note, The New ISDA® Credit Support Annexes and Global Margin Compliance for Uncleared Swaps).
ISDA Amend 2.0 provides the tools necessary for market participants to update their ISDA credit support documentation so that margin collateral arrangements for each party's uncleared derivatives transactions with each of its counterparties conforms to applicable margin regulations.
The compliance date for VM rules in the US, Japan, and Canada is March 1, 2017. Compliance for IM in these jurisdiction phases in over time, beginning next month in the US and Japan.
Compliance with European and Swiss IM requirements has been delayed, but the EU VM implementation schedule is expected to be similar to VM implementation in the US, Japan, and Canada. For implementation schedules in the US, EU, and Japan, see Practice Note, The New ISDA® Credit Support Annexes and Global Margin Compliance for Uncleared Swaps: Applicable Rules and Phase-in Dates.
ISDA has produced a number of documents and tools designed to help market participants achieve compliance with these rules on a staggered and abbreviated timetable. To date, these include:
ISDA has also published other new credit support documents to facilitate margin compliance in various other jurisdictions, see Practice Note, The New ISDA® Credit Support Annexes and Global Margin Compliance for Uncleared Swaps: Agreements and Documentation: 2016 CSAs and Margin Protocols.
ISDA Amend 2.0 synthesizes these ISDA margin compliance tools and permits parties an automated, online solution to these documentation issues.

ISDA Amend 2.0 and the ISDA Margin Self-Disclosure Letter (SDL)

The ISDA Self-Disclosure Letter (SDL) allows parties to disclose information to, and collect information from, each of their counterparties in order to determine when and if their trading relationship is subject to margin requirements for uncleared swaps in any of the applicable jurisdictions. Applicable jurisdiction include the US, EU, Canada, Japan, and Switzerland.
The logic built into the SDL is modular, meaning parties can pick applicable "modules" for margin regulations. Modules include information such as cross-border status and average aggregate notional amount (AANA) of uncleared derivatives trading activity – basic information that permits parties to assess whether or not the margin rules of a certain jurisdiction apply to a transaction.
ISDA Amend 2.0 includes a dashboard that provides swap dealers (SDs) the opportunity to advise their counterparties on which modules from the SDL they need to provide information for in order to make certain regulatory determinations. ISDA hopes that this functionality will help market participants exchange and track a large amount of data in an efficient way.
For more information on the SDL, see Legal Update, ISDA Publishes Self-Disclosure Letter to Help Market Participants Comply with Margin Rules for Uncleared Swaps.

ISDA Amend 2.0 and the Variation Margin Protocol

ISDA published the final VM protocol on August 16, 2016. The VM protocol is designed to provide market participants with an efficient means of updating and amending their collateral documentation. The VM protocol permits parties to enter into new ISDA collateral documentation that complies with the VM requirements for uncleared derivatives in the US, EU, Canada, and Japan.
The VM Protocol is styled as a questionnaire. In order for market participants to update their collateral documents, they must exchange questionnaires in the manner prescribed by the VM protocol and agree upon certain conditions precedent to effectiveness of the new documentation. Under the VM Protocol, parties each fill out questionnaires and look for matches to create a valid and binding agreement.
ISDA Amend allows parties to:
  • Customize VM protocol questionnaires on a counterparty-by-counterparty basis for efficient information collection.
  • Identify failures to match on condition precedent matching elections under the protocol. ISDA Amend includes a reconciliation tool to identify and reconcile matching failures. (For details on counterparty matching, see Legal Update, ISDA Publishes 2016 Variation Margin Protocol to Help Parties Comply with Margin Rules for Uncleared Swaps.)
  • Download matching election results on a counterparty-by-counterparty basis.
  • Manage the inflow of information for margin regulation compliance determinations.
For more information on the VM protocol, see Legal Update, ISDA Publishes 2016 Variation Margin Protocol to Help Parties Comply with Margin Rules for Uncleared Swaps.

ISDA Amend 2.0 and the ISDA Resolution Stay Jurisdictional Modular Protocol (RSJMP)

On May 5, 2016, ISDA announced the launch of the ISDA Resolution Stay Jurisdictional Modular Protocol (RSJMP). The RSJMP is intended to enable market participants to comply with regulations designed to reinforce the cross-border enforceability of stays on termination rights in certain financial contracts. These include regulations on financial contracts of global systemically important banking institutions (G-SIBs) released by the Federal Reserve Board (see Legal Update, Fed Proposes Limit on Termination Rights in Certain G-SIB Financial Contracts).
To do this, the RSJMP amends certain financial agreements, such as repo, securities lending and derivatives contracts, including ISDA Master Agreements governing over-the-counter derivatives transactions, to ensure that stays under rules limiting termination rights under these agreements will be effective with respect to all counterparties, regardless of the governing law of the agreement. The RSJMP amends agreements to permit adhering parties to comply with the stay regulations of their choice.
The RSJMP features separate "jurisdictional modules," each designed to closely reflect the requirements in a particular jurisdiction. The RSJMP has been designed to provide flexibility to allow adhering parties to choose the specific jurisdictional modules it wishes to opt in to.
An entity may adhere to a jurisdictional module as:
  • a regulated entity, where the party is required by stay regulations to obtain opt-in from its counterparties;
  • a module adhering party, where the party is opting in to the stay regulations applicable to a particular regulated entity; or
  • both, where a counterparty is a regulated entity that a module adhering party chooses to amend its covered agreements with.
Through a centralized dashboard on ISDA Amend 2.0, adhering parties to the RSJMP may make entity-by-entity elections, exchange adherence information, extract adherence party capacity, facilitate the exchange of relevant underlying fund information, and batch upload or download information.
For further information on the RSJMP, see Legal Update, ISDA Launches Resolution Stay Jurisdictional Modular Protocol.
"ISDA" is a registered trademark of the International Swaps and Derivatives Association, Inc. (ISDA). ISDA is not a sponsor of Practical Law and had no part in the development of this resource.