The ISDA 2015 Universal Resolution Stay Protocol: Novelties of the stay recognition for financial contracts

Financial contracts such as derivatives, repurchase agreements and securities lending transactions serve vital functions for financial institutions as they facilitate risk management and provide liquidity. The agreements may provide for rights to liquidate, terminate, cancel, rescind or accelerate the relevant agreement or transaction (‘default rights’) of the contract if the counterparty is in the vicinity of insolvency or insolvency proceedings are commenced against it, thereby inter alia mitigating the expected loss from the default. The termination can, however, have disastrous consequences – for example, due to the loss of aforementioned functions for the distressed financial institution. The Financial Stability Board[1] (‘FSB’) paper published on 3 November 2015 stipulates that: