United States
In order to comply with the U.S. Bank Regulators’ QFC Stay Rules using a bilaterally-negotiated contract amendment, 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 amend their existing Qualified Financial Contracts (QFCs, such as ISDA® Master Agreements, EEI® Master Agreements, NAESB® Base Contracts, and many other physical and financial commodity contracts meeting the definition of a QFC in the Dodd-Frank Act) with counterparties that are Global Systemically Important Banking organizations (GSIBs).
In addition, our drafting team has produced three documents that may be used to insert QFC Stay Rule Compliance provisions into a new QFC: (i) a form of QFC Provisions for a New QFC that is an ISDA® Master Agreement, (ii) a form of QFC Provisions for a New QFC that is a NAESB® Base Contract, and (iii) a form of QFC Provisions for a New QFC that is an EEI® Master Power Purchase and Sale Agreement.
Finally, our drafting team also produced a QFC User’s Guide, which may be used as a guide for companies seeking to use all seven of the above QFC Stay Rule Compliance Documents.
Each of these IECA QFC Stay Rule Compliance Documents has been marked “(Version 10-21-2019)” to distinguish the final version of these documents from prior drafts. From time to time, if and when we produce updated versions of one or more of these QFC Stay Rule Compliance Documents, we will include on the upper right-hand corner of the first page an additional mark “(Updated [DATE]),” which will include the date of each such update.
We note also that Templates 1 through 4 of the IECA Bilateral Amendment are actually IECA customized versions of the ISDA® Bilateral Amendment, which was published by ISDA on November 2, 2018. As a condition to our posting these four Templates of the IECA’s customized version of the ISDA® Bilateral Amendment (which we are calling the IECA Bilateral Amendment) on our IECA website, ISDA has required that these Templates 1 through 4 be posted on the members-only section of the IECA’s website.
As a result, if you are a member of the IECA, you will need to log-in to gain access to Templates 1 through 4 of the IECA Bilateral Amendment. If you are not a member of the IECA, you will need to join the IECA and pay the annual dues of $425, in order to gain access. (Click on this link to become a member of the IECA.)
The other four QFC Stay Rule Compliance Documents, (i) a form of QFC Provisions for a New QFC that is an ISDA® Master Agreement, (ii) a form of QFC Provisions for a New QFC that is a NAESB® Base Contract, (iii) a form of QFC Provisions for a New QFC that is an EEI® Master Power Purchase and Sale Agreement, and (iv) the IECA’s QFC User’s Guide, have not previously been copyrighted by any third party and, therefore, are available on both the public-access section and the members-only section of the IECA’s website, along with this page describing the IECA’s QFC Stay Rule Compliance Documents and how to access them.
Click on this link to access the three documents available on the public-access portion of the IECA website.
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 (GSIBs). 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 Stay 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 GSIB to continue entering into new transactions with a counterparty on or after the applicable compliance date set forth in the QFC Stay Rules, that counterparty must agree to amend all of its existing QFCs, and all of its affiliates’ existing QFCs, with that GSIB (and any affiliate in its GSIB group) on or before one of the three applicable 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 GSIBs (and all affiliates in any GSIB group) on a universal basis) and (ii) a form of ISDA Bilateral Amendment template (which amends a company’s and its affiliates’ QFCs with a specific GSIB (and all affiliates in its GSIB group) on a GSIB by GSIB basis, i.e., a bilateral basis).
Our review of ISDA’s two QFC compliance documents and the QFC Stay Rules themselves revealed certain issues affecting non-GSIB companies that led us to produce the IECA’s QFC Stay Rule Compliance Documents. A discussion of these concerns, as well as a copy of the FRB’s version of the QFC Stay Rules (which version of the QFC Stay Rules is essentially identical to the FDIC’s and the OCC’s versions of the QFC Stay Rules), together with other helpful resource materials regarding QFCs, the QFC Stay Rules, and the ISDA QFC compliance documents, are set forth in the IECA’s QFC User’s Guide.
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 we made to the ISDA® Bilateral Amendment form were kept to a minimum, in order to minimize any opposition that GSIBs might have to using these IECA templates to comply with the US Bank Regulators’ QFC Rules.
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. GSIB Group and a Corporate Counterparty Entity;
Template 2, for use between a U.S. GSIB Group and a Corporate Counterparty Group;
Template 3, for use between a Non-U.S. GSIB Group and a Corporate Counterparty Entity; and
Template 4, for use between a Non-U.S. GSIB Group and a Corporate Counterparty Group.
The compliance deadline for companies that are not GSIBs, smaller banks, swap dealers, or major swap participants to amend (conform) their existing Qualified Financial Contracts (QFCs) with GSIBs to comply with the U.S. Bank Regulators’ QFC Stay Rules is January 1, 2020.
We have prepared these IECA QFC Stay Rule Compliance Documents as easy-to-use alternatives, to the ISDA® 2018 U.S. Resolution Stay Protocol (“ISDA® Protocol”) and the ISDA® Bilateral Amendment, for companies to conform (i.e., amend) their existing QFCs with GSIB counterparties. Similarly, we have prepared the two additional forms for companies to easily add QFC Stay Rule compliance provisions into their new QFCs with GSIB counterparties.
We have been careful to ensure that the use of these IECA QFC Stay Rule Compliance Documents will allow those GSIB counterparties to comply with the regulatory requirements of the U.S. Bank Regulators’ QFC Stay Rules. Indeed, that was the stated objective of the comments we received from the law firm hired by the six of the GSIBs to review and comment on the IECA QFC Stay Rule Compliance Documents.
As more fully explained in the QFC User’s Guide, we have produced these IECA QFC Stay Rule Compliance Documents in order to address concerns that arose from our revise of the QFC Stay Rules, the ISDA® Protocol, and the ISDA® Bilateral Amendment. These IECA QFC Stay Rules Compliance Documents are intended to provide greater protection of the issues in the U.S. Bank Regulators’ QFC Stay Rules affecting non-GSIB counterparties, primarily (a) providing greater certainty with respect to the availability of Default Rights arising with respect to the Creditor Protection Provisions of the QFC Stay Rules and (b) addressing certain flaws we perceive in the drafting of certain representations and warranties required to be made by non-GSIB counterparties in the ISDA® Protocol and the ISDA® Bilateral Amendment, all of which is more fully described in the attached QFC User’s Guide.
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 Dodd-Frank Working Group first got involved in the ISDA® special resolution regime protocol drafting process, which involved ISDA, all GSIBs, bank regulators from multiple countries including the FRB, 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 phil.lookadoo@haynesboone.com.
