The International Swaps and Derivatives Association (“ISDA”) published the ISDA Illegality/Force Majeure Protocol (the “Protocol”) on 11 July 2012. The Protocol amends the 1992 version of the ISDA Master Agreement (“’92 ISDA”) to include the Illegality and Force Majeure provisions from the 2002 ISDA Master Agreement (“2002 ISDA”).

The Protocol is part of ISDA’s more general efforts to provide an industry contingency plan for the Eurozone crisis.

There have been concerns about the impact of an exit of one or more Eurozone countries from the Euro as a currency on financial OTC derivatives transactions (“Transactions”).

There is currently no legal process agreed upon for a country to exit the Euro and a number of potential scenarios have been identified. This uncertainty has in turn caused difficulty in identifying one clear process to deal with the impact of such an exit on Transactions. Examples of possible exit scenarios include:

  • An exit by one or more member states from the Euro in an agreed process;
  • A unilateral exit by one or more member states from the Euro;
  • Currency re-denomination (i.e., Euro ceasing to exist); and
  • Currency “split” (i.e., the split of the Euro into two or more currencies linked to different exchange rate mechanisms).

Click here for more information on the Protocol amendments and mechanism.