Why is the ISDA EMU Protocol necessary?
The introduction of the Euro raises certain issues in relation to derivatives transactions entered into under ISDA Master Agreements, where the transaction was agreed before the start of the third stage of EMU but continues after 1 January 1999. There is a strong market consensus that simple amendments to the terms of these transactions would help to eliminate any remaining uncertainty. Through ISDA’s EMU Documentation Task Force standardised amendments have been drafted. These are as follows: • Confirmation of continuity of contract; • Confirmation of applicable successor price sources; • Clarification of payment netting between participating currencies; • New and amended definitions for Euro, ECU, ECU Settlement Day, Business Day and Banking Day; and • Allowance for adjustment to bond options in the light of redenomination of underlying bonds. However, to amend all affected contracts to incorporate these standard amendments would be extremely time consuming and expensive if undertake
