The Short Read
As the size of the digital assets market, and the range of available digital assets, has grown in recent years, so too has the number of interested market participants. On the buy side, demand has been growing for derivatives on digital assets, and on the sell side, dealers have been assessing what role they wish to play in this market. The growth of the asset class has also piqued the interest of regulators, policy makers and central banks.
Thus far, to document over-the-counter (OTC) digital asset derivatives, market participants have used either an ISDA Master Agreement with adapted confirmations and adapted versions of existing ISDA definitions, or their own bespoke agreement which may not be based on ISDA documentation at all.
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The Short Read
It was announced in November 2021 that the implementation of controversial mandatory buy-in provisions under the Regulation on Central Securities Depositories (“CSDR”) has been postponed.
However, other aspects of the settlement discipline measures of CSDR (the “Settlement Discipline Regime”) will take effect as planned from 1 February 2022 – specifically, implementing new arrangements for confirming transactions and communicating allocations of securities, as well as the imposition of cash penalties in respect of settlement fails.
The Settlement Discipline Regime applies to transactions in certain financial instruments settling through a central securities depository based in the European Union (“EU”). The rules apply to all transacting parties – in other words, wherever located in the world.
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The ISDA SBS Protocols
Parties are currently considering whether or not to adhere to the ISDA 2021 SBS Protocol (“SBS Full Protocol”) or the ISDA 2021 SBS Top-Up Protocol (“SBS Top-Up Protocol”, together, the “SBS Protocols”), in anticipation of relevant US Securities and Exchange Commission (SEC) rules governing security-based swaps coming into force on 1 November 2021.
Background
The International Swaps and Derivatives Association (ISDA) developed the SBS Full Protocol and the SBS Top-Up Protocol in response to new SEC rules affecting security-based swaps and related products. These rules follow those previously introduced by the US Commodity Futures Trading Commission (CFTC) in relation to other types of swaps.
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