ISDA® Publishes Tokenized Collateral Model Provisions | Practical Law

ISDA® Publishes Tokenized Collateral Model Provisions | Practical Law

ISDA published tokenized collateral model provisions use in connection with the ISDA 2016 Credit Support Annex for Variation Margin (VM CSA).

ISDA® Publishes Tokenized Collateral Model Provisions

Practical Law Legal Update w-041-8624 (Approx. 5 pages)

ISDA® Publishes Tokenized Collateral Model Provisions

by PLC Finance
Published on 03 Jan 2024USA (National/Federal)
ISDA published tokenized collateral model provisions use in connection with the ISDA 2016 Credit Support Annex for Variation Margin (VM CSA).
On December 20, 2023, ISDA® published tokenized collateral model provisions for inclusion in the ISDA 2016 Credit Support Annex for Variation Margin (VM CSA). These provisions may be used by parties transferring tokenized securities or stablecoins that are tokenized using distributed ledger technology (tokenized collateral) as collateral under the VM CSA.
The provisions allow parties to make changes to the VM CSA to accommodate the use of tokenized collateral, including:
  • Designating specific tokenized collateral as eligible credit support.
  • Expanding transfer mechanisms to include tokenized collateral.
  • Making amendments to the:
    • local business day provision to reflect the 24/7 operation of distributed ledger technology; and
    • distribution provisions of the VM CSA to provide for distributions of issuer-led airdrops for certain forms of tokenized collateral.
The tokenized collateral provisions do not address all issues that may be relevant to the transfer or receipt of tokenized collateral, including, among other things:
  • Enforceability.
  • Regulatory.
  • Tax.
  • Accounting considerations.
Update: On May 21, 2024, ISDA published a guidance note on the ISDA tokenized collateral model provisions to inform counsel on how they may approach a legal opinion on the enforceability of collateral arrangements entered into under certain ISDA collateral documentation where the relevant collateral arrangement includes tokenized collateral.
"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 update.