Authored by Ren Gulong ( at AnJie Law Firm

On October 11, 2014, The International Swaps and Derivatives Association (ISDA) announced that 18 major global banks have agreed to sign a new ISDA Resolution Stay Protocol (the “Protocol”). The Protocol has been developed in coordination with the Financial Stability Board to support cross-border resolution and reduce systemic risk.



Under an ISDA Master Agreement, the insolvency of a derivatives counterparty, or the start of resolution actions against it, can trigger certain close-out rights – including termination of the swap, foreclosure on collateral and claim for payments.  When multiple counterparties attempt to exercise these rights at once, it can create market panic and a rush to drain the bank’s assets, as occurred with Lehman in 2008.

Statutory law of certain jurisdictions

Certain jurisdictions have already addressed this issue through the development of statutory resolution regimes – for instance, Title II (Orderly Liquidation) of the Dodd-Frank Act [1]  and the EU Bank Recovery and Resolution Directive. Those statutes impose a stay on termination rights in the event a bank is subject to resolution action in its jurisdiction.  However, stays on termination rights under a particular resolution regime may not be enforceable against all swap counterparties of the banking group, which would likely be located in different jurisdictions and transacting under the laws of a variety of jurisdictions.

The Protocol

The Protocol provides for temporary stays on certain default and early termination rights within standard ISDA derivatives contracts in the event one of the large banking organizations is subject to an insolvency or resolution proceeding in its home jurisdiction.

The Protocol are intended to facilitate an orderly resolution of a major global banking firm and reduce the potential negative impact of the resolution on financial stability.

The Protocol will take effect from January 1, 2015, and will govern both new and existing trades between adhering parties.


The 18 banks signing the Protocol are:

  • Bank of America Merrill Lynch
  • Bank of Tokyo-Mitsubishi UFJ
  • Barclays
  • BNP Paribas
  • Citigroup
  • Crédit Agricole
  • Credit Suisse
  • Deutsche Bank
  • Goldman Sachs
  • HSBC
  • JP Morgan Chase
  • Mizuho Financial Group
  • Morgan Stanley
  • Nomura
  • Royal Bank of Scotland
  • Société Générale
  • Sumitomo Mitsui Financial Group; and
  • UBS


[1] Under the US Bankruptcy Code, “qualified financial contracts” (QFCs), including repurchase agreements, interest rate and currency swaps, credit default swaps, and other derivatives, are exempt from the automatic stay. Therefore, QFC counterparties are afforded special treatment and are free to take certain actions that otherwise would be prohibited by the automatic stay when their contract counterparties commence bankruptcy cases, including closing out their derivatives contracts. The Dodd-Frank Act has revised this exception.