Safe Harbor Provisions for Financial Contracts

Summary

This practice note discusses the Bankruptcy Code's safe harbor provisions for financial contracts and certain participants in the financial markets. The financial contracts that qualify under the safe harbor provisions include securities contracts, commodity contracts, forward contracts, repurchase agreements, swaps, and other derivatives. These contracts are interdependent and are all the subject of active real-time trading, and in many cases are the subject of back-to-back trading transactions. Any disruption or delay in the closing of one trade line may interfere with the trade scheduled for two completely unrelated parties. As a result of the foregoing, the insolvency of one market participant can have a devastating effect on the entire trading market by creating systemic risk.