Buy-Side Beware: New Limits on Insolvency-Related Remedies in Certain QFCs

In mid- to late 2017, each of the Board of Governors of the Federal Reserve System (Board), the Office of the Comptroller of the Currency (OCC), and the Federal Deposit Insurance Corporation (FDIC) (together these entities are referred to as the Regulators) adopted parallel, complementary and substantively identical final rules (Rules) that will impact the insolvency-related transfer and “default rights” of certain buy-side parties transacting in covered “qualified financial contracts” (Covered QFCs). These Covered QFCs include swaps, other derivatives contracts, repurchase agreements (repos) and reverse repos, and securities lending and borrowing transactions with certain systemically important banking entities.

The Rules directly apply to banking entities that are: (i) deemed to be a global systemically important U.S. banking organization (U.S. GSIBs) or that meet an asset size threshold; (ii) certain subsidiaries of a U.S. GSIB; or (iii) certain U.S. operations of systemically important foreign banking organizations (Foreign GSIBs). (These entities are generally referred to as Covered Entities in this article and each category of Covered Entity, which includes a Covered Bank and a Covered FSI (each as defined below), is described in more detail.)

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