The International Swaps and Derivatives Association (ISDA) has published a new interactive digital framework to help market participants prepare for potential terminations of colleteralised derivatives contracts.
In response to the failure of Signature Bank and Silicon Valley Bank in March 2023, the ISDA Close-out Framework will serve as a resource to help firms and service providers prepare for any potential future stress events.
In-scope entities now have to post margin for non-cleared derivatives transactions, while various jurisdictions introduced mandatory stays on termination rights and remedies as part of bank resolution regimes, the association says.
The ISDA Close-out Framework includes high-level analysis of the default mechanics and collateral enforcement provisions in ISDA documentation, alongside additional commentary on bank resolution legislation in the US and Europe.
ISDA’s general counsel Katherin Tew says: “Recent stress events have drummed home that terminating a portfolio of derivatives trades is now much more complex as a result of regulatory reforms.
“The introduction of mandatory margining and segregation requirements, alongside the implementation of bank resolution regimes, means firms need to be able to quickly respond to complex legal and operational issues that will require input from different teams across the organisation.”
