The regulatory fallout from the 2008 global financial crisis continues to affect derivatives and other instruments traded by private funds. Final rules issued in 2017 by three U.S. federal banking regulators (the U.S. Stay Regulations) alter how certain qualified financial contracts (QFCs) will be treated in U.S. bankruptcy proceedings. Although neither private funds nor their managers have direct obligations under the U.S. Stay Regulations, fund managers will nevertheless need to bring certain trading agreements into compliance with those regulations in order to continue trading QFCs with bank counterparties or their affiliates after January 1, 2019. In a recent interview with the Hedge Fund Law Report, Leigh Fraser, partner at Ropes & Gray and co-leader of the firm’s hedge fund group, discussed the U.S. Stay Regulations; the impact that these new regulations have on the trading and documentation of QFCs by private funds; and ways fund managers can ensure compliance with the new regulations, including a discussion of the recently released ISDA 2018 U.S. Resolution Stay Protocol. For additional insights from Fraser, see “Steps Hedge Fund Managers Should Take Now to Ensure Their Swap Trading Continues Uninterrupted When New Regulation Takes Effect March 1, 2017
” (Feb. 9, 2017); and our three-part series on best practices in negotiating prime brokerage arrangements: “Preliminary Considerations When Selecting Firms and Brokerage Arrangements
” (Dec. 1, 2016); “Structural Considerations of Multi-Prime and Split Custodian-Broker Arrangements
” (Dec. 8. 2016); and “Legal Considerations When Negotiating Prime Brokerage Agreements
” (Dec. 15, 2016).