Federal Reserve Finalizes QFC Rule Restricting Default Rights

 The Board of Governors of the Federal Reserve System released today a Final Rule Establishing Restrictions on Qualified Financial Contracts of Systemically Important U.S. Banking Organizations and the U.S. Operations of Systemically Important Foreign Banking Organizations (“QFC Rule”).

Links to the QFC Rule and related materials are provided below.

The QFC Rule imposes limitations on the default rights of counterparties that may be included in swaps, repos and certain other financial contracts entered into with systemically important financial institutions subject to the rule (“Covered Entities”). The exercise of such rights in the context of the failure or resolution of a Covered Entity is limited in certain circumstances in order to facilitate the orderly resolution of the Covered Entity.

The QFC Rule is also relevant for the ISDA 2015 Universal Resolution Stay Protocol, Section 2 of which (addressing failures under the U.S. Bankruptcy Code and the Federal Deposit Insurance Act) becomes effective upon the deadline for compliance with U.S. rules imposing limitations on the default rights that may be included in contracts with financial companies.

QFC Rule materials:

• Staff Memo
• Draft Federal Register text