Isda presses Congress for passage of netting provisions

The International Swaps and Derivatives Association, the trade association for the financial risk management industry, has teamed with other key trade bodies in pressing the United States Congress to secure favourable passage of legislation on financial contract netting before it adjourns this year.

Netting provisions would strengthen and clarify the enforceability of early termination and close-out netting provisions in industry standard master agreements, and related collateral arrangements in US insolvency proceedings, Isda said.

The provisions include improvement to payment risk reductions and netting provisions of the Bankruptcy Code and US bank insolvency laws. In a joint letter to Congress, Isda asserted the legal uncertainty created by the Bankruptcy Code’s treatment of financial contracts has resulted in US companies receiving less favourable credit treatment from their trading counterparties that are not subject to the US insolvency laws.

These uncertainties have been a major impediment to the adoption of cross-product netting documentation developed by the derivatives industry. Removing these uncertainties will make it easier for providers of credit to ascertain their risks, thereby assisting in providing credit to American businesses, the letter stated.

"The time to act on these provisions is now," said Robert Pickel, Isda's chief executive, in a statement. "The risk reduction benefits of the netting provisions are enormous, and we hope Congress will act to eliminate the legal uncertainty created by the Bankruptcy Code's treatment of financial contracts."

Other signatories to the letter include: American Bankers Association, ABA Securities Association, The Bond Market Association, Emerging Markets Traders Association, The Foreign Exchange Committee, Futures Industry Association, The Financial Services Roundtable, Investment Company Institute, Managed Funds Association, The New York Clearing House Association, The Options Clearing Corporation and the Securities Industry Association.