It is a matter of time before you, as a market participant, are approached by large institutional derivative, securities lending or repo counterparties from the United Kingdom ("UK") to sign up to the International Swaps and Derivatives Association's Resolution Stay Jurisdictional Modular Protocol ("ISDA JMP") and the UK jurisdictional module, or before you are asked to include resolution stay provisions in new derivative, securities lending or repo agreements.
What is the ISDA JMP?
In an effort to address the failure of certain "too-big-to-fail" financial entities, these entities are now required to ensure that their financial agreements stay the exercise of termination rights and security enforcement rights to the extent that measures enacted by the UK Prudential Regulation Authority ("PRA") would stay such rights.
The PRA requirement applies to financial agreements with termination and security enforcement rights (such as derivative, securities lending and repo agreements) that are governed by third-country law (ie, non-English). The ISDA JMP and the UK jurisdictional module were published by the ISDA on 3 May 2016 to assist regulated financial entities with their compliance with this UK regulatory requirement.
What does it do?
The ISDA JMP and UK jurisdictional module obtain from South African parties an enforceable recognition of the applicability of stays on termination and security enforcement that may be imposed by the PRA when a financial entity becomes subject to crisis management or other similar measures by the PRA. In the event of such measures coming into force in respect of a UK counterparty, the South African parties would be obliged to comply with whatever stay is imposed by the PRA for the duration of the stay.
A similar jurisdictional module was published for Germany on 28 June 2016 and additional jurisdictional modules are planned.
South African parties should seek advice and fully understand the consequences before signing up to the ISDA JMP.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.