Qfc Stay Rules And Credit Agreements

Compliance with the QFC rules can also be achieved through bilateral negotiating agreements. Contracting parties may apply bilateral amendments in cases where, for example, they wish to opt only for the U.S. Special Solution regime, but do not wish to opt for the other regimes identified. Bilateral amendments would also allow a party to select certain GSIB and QFCs for which it wishes to make the necessary changes. Contracting parties may also enter into bilateral agreements if they do not wish to approve the insolvency provisions of the 2018 Protocol, since their QFCs (and associated credit enhancements) do not contain cross-faults directly or indirectly related to insolvency proceedings or transfer restrictions. ISDA has prepared standard bilateral amendments that the parties can use for this purpose. However, QFC`s rules encourage compliance with the 2018 protocol (or the 2015 protocol) by providing a safe haven for parties who choose to comply in this manner, as noted above. The provisions of the Safe Harbor 2018 protocol and the 2015 protocol contain certain provisions relating to creditor protection, particularly in the event of insolvency of a related business of an insured business, which are not available to parties who decide to comply with QFC rules through bilateral amendments. Accordingly, the parties should consider the pros and cons of implementing the bilateral amendments. In principle, Section 1 of the 2018 Protocol contains a number of provisions that restrict the exercise of default rights and authorize covered QFC transfers (and related credit enhancements) in the following cases: QFC rules also prohibit a covered company from closing a QFC allowing the exercise of directly or indirectly related default rights.

“4 to a subsidiary of the insured company subject to bankruptcy, insolvency, liquidation, settlement or similar proceedings (in the United States or abroad) (bankruptcy proceedings). The purpose of this provision is to limit the possibility for counterparties to declare “crossdefaults” on the basis of the bankruptcy of affiliated companies, as long as the company concerned remains solvent. Banking supervision does not want a company`s insolvency in a consolidated group to trigger cross-faults that lead to their otherwise solvent subsidiaries becoming insolvent.