SIFMA, ICMA and ISLA Introduce Securities Financing Transaction Annex in Response to Prudential Regulation Authority's Consultation Paper

SIFMA, the International Securities Lending Association ("ISLA") and the International Capital Market Association ("ICMA") (collectively, the "associations") responded to a Prudential Regulation Authority consultation paper that proposed new rules requiring the recognition of UK resolution stays in certain financial contracts. The consultation paper, titled "Contractual Stays in Financial Contracts Governed by Third-Country Law" concerns contracts governing derivatives, repurchase and reverse repurchase transactions and securities lending transactions governed by the laws of jurisdictions outside the European economic area.

In response to the proposed rules outlined in the consultation paper ("Proposed Rules"), the associations developed a Securities Financing Transaction ("SFT") Annex ("SFT Annex") to the ISDA 2014 Resolution Stay Protocol ("ISDA Stay Protocol"). The SFT Annex is intended to provide the users of master agreements published by the associations with the means to comply with the requirements under the Proposed Rules.

The associations expressed hope that both the PRA and Bank of England would support the use of the SFT Annex, including with a statement "confirming that regulated financial institutions subject to the Proposed Rules ('Covered Entities') will be considered to have satisfied the conditions of the Proposed Rules for any financial arrangements which are the subject of the SFT Annex."

Additionally, the associations recommended that "where subsidiaries of PRA regulated banks are outside of the scope of UK Banking Act resolution powers they should not be included in scope for the Proposed Rules." In response to the proposal that the new rules cover financial transactions effected after January 1, 2016, as well as all financial transactions materially amended after that date, the associations asked the regulators to provide clarity regarding the meaning of "materially amended" in the context of securities financing transactions, as well as examples that would be relevant to such transactions specifically. Finally, the associations asked for confirmation that terminable-on-demand transactions that have additional termination rights are not financial arrangements subject to the requirements in the Proposed Rules.