A drafting team from the IECA’s Dodd-Frank Working Group has produced four templates of a Bilateral QFC Amendment that may be used by companies seeking to comply with the U.S. Bank Regulators’ QFC Rules using a bilaterally-negotiated contract amendment between each such company and its G-SIB counterparty. Click on this link to access these templates.
These four IECA templates are intended for use by companies that have Qualified Financial Contracts (QFCs) with large so-called Global Systemically Important Banking organizations (G-SIBs). QFCs include ISDA® Master Agreements, EEI® Master Agreements, NAESB® Base Contracts, and many other physical and financial commodity contracts. Essentially any such contract that would be a safe-harbor contract under the US Bankruptcy Code is likely to be a QFC.
Under regulations (the QFC Rules) issued by the US Board of Governors of the Federal Reserve (FRB), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC, referred to collectively herein with FRB and FDIC as the “US Bank Regulators”), in order for a specific G-SIB to continue entering into new transactions with a counterparty on or after January 1, 2019, that counterparty must agree to amend all of its existing QFCs, and all of its affiliates’ existing QFCs, with that G-SIB (and any affiliate in its G-SIB group) on or before one of three compliance dates, which for most companies is January 1, 2020.
ISDA® has produced (i) a protocol called the ISDA® 2018 US Resolution Stay Protocol (which amends all of a company’s QFCs with all G-SIBs (and all affiliates in any G-SIB group) on a universal basis) and (ii) a form of Bilateral Amendment template (which amends a company’s and its affiliates’ QFCs with a specific G-SIB (and all affiliates in its G-SIB group) on a G-SIB by G-SIB basis). Our review of those documents revealed certain issues that companies should consider, which issues are discussed in the IECA Analysis and Commentary at the beginning of each template.
Our IECA version of these four Bilateral QFC Amendment templates began with the ISDA® Bilateral Amendment, which invited modification and customization by third parties. In fact, the number of changes that were made to the ISDA® Bilateral Amendment form were kept to a minimum, in order to minimize any opposition that G-SIBs might have to using these IECA templates to comply with the US Bank Regulators’ QFC Rules. For the convenience of G-SIBs reviewing these templates, each template includes a redlined comparison of the IECA version of the Bilateral QFC Amendment against the corresponding ISDA® Bilateral Amendment.
We note that each of these four templates addresses slightly different factual circumstances, but all four are substantively the same. These four separate templates are designed to be used in the four separate circumstances that parties will find themselves, namely:
Template 1, for use between a U.S. G-SIB Group and a Corporate Counterparty Entity;
Template 2, for use between a U.S. G-SIB Group and a Corporate Counterparty Group;
Template 3, for use between a Non-U.S. G-SIB Group and a Corporate Counterparty Entity; and
Template 4, for use between a Non-U.S. G-SIB Group and a Corporate Counterparty Group.
For each of the four Templates, there will be two documents: (i) a PDF document, that contains (a) our Analysis and Commentary, (b) the actual IECA version of the Bilateral QFC Amendment, and (c) a redlined comparison of this IECA version of the Bilateral QFC Amendment against the original ISDA® Bilateral Amendment, and (ii) a Word document that contains only the IECA version of the Bilateral QFC Amendment, into which users will insert their entity names and other identifying information, make certain elections, and then sign.
As noted above, each of these templates begins with an IECA Analysis and Commentary, which is followed by the actual Bilateral QFC Amendment template. We have attempted to write these four templates with an easy-to-read Executive Summary Analysis and Recommended Usage instructions on the first two pages, which should allow most people to determine relatively easily whether they will want to use one of these templates, and which one of these templates they will use, in order to comply with the U.S. Bank Regulators’ QFC Rules.
Following that executive summary is a Detailed Analysis and Commentary that we intend as a detailed legal review of the issues our drafting team has raised in the Executive Summary Analysis. Various members of our drafting team have been living with these documents as they have evolved and developed since November 2014, which is when members of our IECA working group first got involved in the ISDA® process with G-SIBs, bank regulators from multiple countries, and various so-called “buy-side” companies.
Special thanks to the IECA’s CLEG Dodd-Frank Working Group and its drafting team for producing the IECA’s version of these Bilateral QFC Amendment templates.
For further information, please contact Phil Lookadoo, Haynes and Boone, LLP, chairman of the IECA’s CLEG Dodd-Frank Working Group at email@example.com.
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