Following closely on the heels of the historic decision by 11 European countries to abandon their national currencies in favor of a new single European currency, the euro, ISDA launched its EMU Protocol on May 6. The Protocol was an immediate success with 43 entities adhering to it as this newsletter went to press. ISDA formed EMU task forces in the areas of documentation, market practices, operations, legislation, tax and accounting to identify the issues of most concern to the industry. As they were identified, the need for an efficient, cost-effective mechanism to address them became apparent. ISDA, acting as agent, receives signed and conformed copies of letters from adhering parties and displays the scanned, conformed copies of the letters on its web site.
Parties are then able to view the letters submitted by their counterparties.
The ISDA task forces reached a consensus on five general issues relating to EMU, which are addressed in separate Annexes to the Protocol. The Annexes address continuity of contract, price sources, payment netting, definitions and bond options. Each Annex modifies existing ISDA documentation, and parties can specify which Annexes they wish to apply to their Master Agreements. Where two parties' letters each specify that a particular Annex is applicable, their Master Agreement is amended to include the provisions in that Annex. Other than simply leaving the issues unaddressed, the only alternative to the Protocol is the costly, time-consuming process of bilaterally negotiating amendments to existing Master Agreements.