The International Swaps and Derivatives Association's Emu protocol should be voted the legal deal of 1998. It allows counterparties that have existing deals on Isda standard terms to adopt new provisions to cope with the euro. The trick was to get the market to agree.
"It was crisis management," says Jeffrey Golden, a partner at Allen & Overy. "Although there had been a lot of discussion about the effects of the euro, we weren't able to take practical action until the decision in May 1998 over which countries would be in or out. That left little time to obtain formal amendments to outstanding documentation, even assuming a market consensus about how the necessary changes could be achieved."
Isda documentation is used by a wide variety of entities, including investment banks, multinational companies, governments, central banks, supranationals and investment institutions. Each has its particular sensitivities. Through a series of roundtable discussions, it became apparent that five principal issues were sufficiently pressing to generate support for establishing revised terms. These were:
Continuity of contracts The risk that the introduction of the euro could be used as an excuse to walk away from a deal that had become less advantageous, on the basis of the doctrine of frustration (not all jurisdictions had passed legislation covering this);
Business day definitions Good business days for settlement in national currencies take account of national holidays, but where a currency is transnational a good business day can inadvertently fall on somebody's national holiday, leading to uncertainty or even mismatches for existing contracts;
Price sources Interest rate price sources for national currencies may disappear or their calculations change after the euro's introduction, also leading to uncertainty and - in the case of reference bank quotations as fallbacks - possible administrative burden and operational delay.