No. Participation in the Protocol is not limited to market participants who have already concluded a framework agreement in 2002. The Protocol has been specifically designed to be open to any market participant that has concluded or could conclude a 2002 framework agreement. It is forward-looking in so far as the provisions of the Protocol agreed between them apply to their relations under that 2002 Framework Agreement where two acceding Parties conclude a 2002 Framework Agreement. The Protocol reflects an innovative procedure which makes it possible to consider as having made various standardised amendments to one or more documents from the period prior to 2002 when those documents are used in the context of a 2002 framework contract. It is based on the principle that the parties may agree with one or more other parties that certain terms and conditions apply now and/or in the future to their respective relationships (unless they expressly agree otherwise). There is no doubt that market participants face logistical challenges when moving to the new master, including developing policies and procedures for its use. A major challenge comes not so much from the 2002 master`s degree itself, but from the fact that much of the IsDA documentation library is older than the one in 2002. It is this challenge, not the challenge of moving from the 1992 Master to the 2002 Master`s degree, that the latest protocol can help overcome isDA. The 2002 Framework Agreement Protocol, published in July last year, is the latest member of the ISDA family of protocols. ISDA began drafting protocols in 1998 when it published its Protocol on European Monetary Union, to which more than 1,100 market participants have acceded.
The issues dealt with may be different, but the common feature of the protocols is the multilateral mechanism they provide. This mechanism allows a Party to address certain issues between itself and all other signatories to the Protocol in a single simple act, saving time and costs that would otherwise have to be spent on multiple bilateral negotiations. The protocol also clarifies mini-closure provisions that assume that a termination event (not an additional termination event) has occurred. Under the 2002 Framework Agreement, a different (medium-sized) valuation procedure applies when transactions are terminated due to illegality or force majeure, and not due to another termination event. The protocol resolves the ambiguity by clarifying whether what is deemed to have happened is either an illegality, a case of force majeure, or another type of termination event. Where those provisions provide that the conclusion must be made on the basis of the existence of two parties concerned, the Protocol provides that an event of illegality or force majeure is deemed to have occurred, thus making use of the mid-term evaluation procedure provided for in the 2002 Framework Agreement. Prior to the publication of the 2002 agreement, ISDA published a number of brochures and definitional documents in support of loans. These documents refer to the terminology and provisions of the 1992 ISDA Framework Agreements.
The Protocol allows for the amendment of these various documents to take account of the new terminology and provisions of the 2002 Agreement. If an institution were to amend all relevant contracts to adopt these standard changes, it would entail a significant expenditure of time and money if it were to be conducted in bilateral negotiations between all counterparties. ISDA therefore supports a multilateral mechanism for change – the Protocol. The Protocol may enter into force between 15 July 2003 and 1 June 2004. Please note that, in accordance with the provisions of the Protocol, the original deadline of 1 March 2004 has been extended to 1 June 2004. The Protocol provides for a number of amendments which are deemed to have been made to certain documents prior to 2002 when those documents are used under a 2002 Framework Agreement. Some issues are only included in a document from the period before 2002, but a number of issues are included in more than one document from the pre-2002 period and are therefore dealt with in more than one annex: in addition to the issues dealt with, the peculiarity of the Protocol to the 2002 Framework Agreement is that it is forward-looking. All previous ISDA protocols were designed to make only changes to framework agreements (or, in one case, credit documents) that had already been concluded between the parties. The new protocol would be of limited use if it did nothing more, because the universe of the Masters conducted in 2002 remains relatively small. The protocol therefore looks to the future and takes into account both the fact that some market players have not yet completed a Master 2002 and the fact that even those who have already enrolled in a Master 2002 will enter more in the future. There is therefore a risk of real ambiguity if these documents are used as is in conjunction with a 2002 master`s degree.
While parties are free to address issues whenever they use a pre-2002 isDA document in conjunction with a 2002 framework document (including provisions in their confirmations or credit support agreements, if necessary), this requires precautions and the use of resources. By far, the safest and most effective way to solve problems is to follow the protocol. Is ISDA preparing legal advice accompanying the Protocol to the 2002 Framework Agreement? How long do I have to participate in the 2002 Framework Agreement Protocol? Is there a deadline? Although we are still in a transition phase, it is only a matter of time before the master of the 21st century becomes the standard framework agreement for a 21st century market – at least for new companies. Undeniably, the 1992 Master (released before many products, including credit derivatives, arrived on stage) shows his age despite all his virtues. The Master 2002, on the other hand, is the state of the art and reflects the lessons learned in times of market stress over the past 10 years and important developments in litigation, legislation and market practices….