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Regulators Seek Pause Button on Repo Termination Rights

Global banking regulators are pushing industry groups to make changes to the standard contracts that govern repurchase agreements and securities lending transactions, the Wall Street Journal reports. Such a change would mean a temporary waiver of certain contractual rights when faced with a troubled counterparty. For example, a firm would temporarily forfeit its rights to terminate the agreement early, giving the regulators and the troubled counterparty time to “arrange a lifeline.” Similar changes were made to swaps contracts last year through an agreement coordinated by the International Swaps and Derivatives Association and signed by many large banks.

The Financial Stability Board, the Federal Reserve, and other banking regulators are advocating for the changes, and the article suggests that the International Securities Lending Association, the International Capital Market Association, and SIFMA will play large roles in the effort. Though the industry contracts are frameworks, the article notes that regulators in the United States are contemplating a rule that would prevent banks from trading with parties that have not accepted the agreement.