Model Terms 2011 – changes and migration challenges Andrei Murygin 14 March 2012

Model Provisions (M.P.) 2011 – Principal changes Mandatory Terms which cannot be changed – this is necessary to fix compliance of the M.P. 2011 Master Agreement with the netting law requirements; Terms restricted from change include: bankruptcy triggers: licence revocation for banks and bankruptcy recognition for corporates; automatic termination as of the date preceding such bankruptcy recognition or licence revocation; close out netting clause and Close Out Amount formula to the extent close out is triggered by the above triggers; Close Out Amount due after any of the above triggers is payable not later than 30 days after the automatic termination.

Principal changes (contd) Range of transactions extended to cover additional DFI asset classes: inflation rates; more commodity derivatives; credit default products and CDS; margin payments; contracts which are not DFIs and “the subject-matter of which is cash and/or securities” and which are settled on T+3 plus – money market?

Principal changes Cross-currency definitions added; commodity definitions pending; Registration with repository and nomination of the Notifying Party; Bankruptcy triggers: creditor meeting and restructuring negotiations triggers have been removed – step away from ISDA? Close-out Amount does not include lost profit and penalties BUT; Default interest is not a penalty and cost of funding/hedging can be included in the Close-Out Amount calculation.

Collateral “Contracts for payment of floating margin amounts” are included in the basic DFI list in the Master; Form of Margin Agreement - collateral is not treated as alternative security arrangements anymore; Improves chances of inclusion in Close out Amount; M.P. 2011 registered by the FSFM; Does it improve enforceability of collateral in the absence of statutory recognition of margin payments in the SML?

Migration to M.P. 2011 New agreements – use M.P. 2011 for netting purposes; Old arrangements – re-execute on M.P. 2011 terms but watch elections made in 2009 M.P. if they do not affect the “Mandatory Terms”; Existing Master FX and MM Agreements – sign addendum referencing M.P. 2011 and replace those clauses which may contradict “Mandatory Terms”? All forms: add registration and alteration language to cater for the anticipated FSFM repository registration regulations.

Questions ?