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agosto 16, 2023

Qfc Stay Rules Underwriting Agreements

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QFC Stay Rules Underwriting Agreements: A Comprehensive Guide

Underwriting agreements are a vital aspect of any public offering. They outline the terms and conditions of the transaction, including the underwriters` responsibilities, the issuer`s obligations, and the pricing of the securities being offered. However, these agreements are not immune to disruptions, especially in times of financial distress. This is where the QFC (Qualified Financial Contracts) Stay Rules come into play. In this article, we`ll explore what QFC Stay Rules are, how they impact underwriting agreements, and what measures underwriters can take to mitigate their effects.

What are QFC Stay Rules?

The QFC Stay Rules were introduced by the Federal Reserve Board in 2017 as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The rules aim to reduce the risk of contagion in the financial system by providing a framework for resolving distressed financial institutions, particularly those that are designated as systemically important. Under the QFC Stay Rules, parties to a qualified financial contract (QFC) are subject to a temporary stay on their contractual rights if the counterparty to the QFC becomes subject to certain resolution proceedings or bankruptcy.

How do QFC Stay Rules Impact Underwriting Agreements?

Underwriting agreements typically involve several financial contracts, including QFCs. These contracts may include swap agreements, repo agreements, and other derivatives that are used to hedge against risks associated with the securities being offered. If the issuer or any other party to the underwriting agreement becomes subject to a resolution proceeding or bankruptcy, the QFC Stay Rules may prevent the underwriter from exercising its contractual rights under these contracts, which could result in significant losses.

To mitigate the effects of QFC Stay Rules on underwriting agreements, underwriters must incorporate certain provisions or «bail-in» clauses in their agreements. These provisions allow for the underwriter`s rights under the QFCs to be bailed-in to new counterparties, preserving the underwriter`s position and minimizing any potential losses. Other measures include the use of netting agreements to reduce the size of the exposure to any one counterparty and the use of credit enhancements such as collateral agreements.


In conclusion, QFC Stay Rules play a vital role in protecting the financial system from contagion. However, they also have implications for underwriting agreements, which can be mitigated by incorporating provisions that allow for the underwriter`s contractual rights to be bailed-in to new counterparties. Underwriters should also consider using netting agreements and credit enhancements to minimize their exposure. By taking these measures, underwriters can protect themselves and their clients from any potential losses resulting from the application of QFC Stay Rules.

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