Zero-hour rule
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Regulatory Capital Anatomy™
The JC’s untutored thoughts on how bank capital works.
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Zero-hour rule
/ˈzɪərəʊ/-/aʊə/ /ruːl/ (n.)
A provision in a bankruptcy law which, at midnight on the date the institution is declared bankrupt, suspends or sets aside its transactions or renders its counterparties’ contractual rights under those transactions ineffective by operation of law.
A bankruptcy administrator can set them aside and often has broad discretion to do what seems right in the interests of creditors.
It is the fear of zero-hour rules and like minded bankruptcy shenanigans that prompted ISDA’s crack drafting squad™ to devise the concept of Automatic Early Termination in the ISDA Master Agreement. Whether it works — it being a bit of an obvious end-run around the intent of the legislation — is a different question.