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United Kingdom

Banks prepare for Emu

Although the UK will not be in the first wave of member states participating in the third stage of Emu on January 1 1999, banks and other financial institutions in the London markets have been preparing for the single currency.

The British Bankers' Association (BBA), the International Swaps and Derivatives Association (ISDA) and the Financial Law Panel (FLP) have assisted in the final stages of preparations through a number of initiatives.

British Bankers' Association

The BBA sponsors the International Foreign Exchange Master Agreement, the International Currency Options Master Agreement and the Foreign Exchange and Options Master Agreement. Together with the New York Financial Markets Lawyers Group, the BBA has produced an Emu protocol that can be used to amend contracts governed by these master agreements between mutually adhering pairs of counterparties. The BBA's Emu protocol covers the following matters:

  • continuity of contract;
  • the provision of replacement price sources;
  • clarification of payment and novation netting provisions;
  • new definitions relating to the euro; and
  • provisions for average rate options and barrier options.

The adherence mechanism was similar to that sponsored by ISDA to allow parties to amend derivatives contracts governed by ISDA's standard terms.

International Swaps and Derivatives Association

ISDA has recently issued the following:

  • 1998 euro definitions;
  • a memorandum on recent developments on market conventions for the euro;
  • supplemental guidance on operations issues for derivative businesses; and
  • a final update summarizing the impact of Emu on price sources.

Financial Law Panel

The FLP has examined the effect of Emu on the continuity of contracts under the laws of Japan, Switzerland, Singapore, New York and Hong Kong. The reports have come to some encouraging conclusions. In its final report, the FLP summarized the position under the laws of New York and Hong Kong.

New York

Some of the issues raised by Emu had not been the subject of consideration by New York courts. In view of the number of transactions which might be affected by the single currency, it was felt wise to put the matter beyond doubt by adopting legislation in New York which would mirror the relevant EU regulation (Article 235 Regulation). In July 1997 a bill was passed in the New York legislature and came into force providing for continuity of contracts after Emu. Similar legislation was also adopted in Illinois and California and is under consideration in other states. With the passage of this bill, there is a consensus among legal experts in New York that Emu will not have undesirable consequences as far as the operation of New York law is concerned. Hong Kong

In August 1998 the Hong Kong Monetary Authority announced the intention of the government to introduce legislation in Hong Kong to ensure continuity of contracts after Emu. A draft of the legislation has been released for comment. In material respects, the proposed legislation mirrors the effect of the Article 235 Regulation. The Hong Kong government's stated intention is to remove any lingering doubt that legal problems might arise in this area.

Mark Evans

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