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ISDA Master Agreements Guide

The ISDA Master Agreements Guide provides our users with a complete online resource relating to ISDA Master Agreements, including articles on the ISDA Master Agreement standard terms, the schedule, and sample provisions used by market participants to modify, supplement or amend the ISDA Master Agreement standard terms. The following section ('ISDA Master Agreement, Schedule and Credit Support Annex') discusses the background and structure of the ISDA Master Agreements in general.

Detailed discussions relating to individual sections of the ISDA Master Agreements are organised in the 2nd section ('ISDA Master Agreement Section by Section Guide'). Explanation related to the Schedule to the ISDA Maste Agreement is also included. Access to the rest of the ISDA Master Agreement Guide, including articles on individual sections of the ISDA Master Agreements is subject to an annual paid subscription.

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ISDA Master Agreement, Schedule and Credit Support Annex

The ISDA Master Agreements published by the International Swap and Derivatives Association, Inc are the industry standard for the derivatives markets. The standard terms contained in the ISDA Master Agreements can be used for a wide range of over-the-counter (OTC) derivatives transactions. For an introduction to the ISDA Master Agreement please see this article.

This article mainly refers to the provisions in the 2002 ISDA Master Agreement but also include extensive discussions on the 1992 ISDA Master Agreement.

1992 ISDA Master Agreement (Multicurrency – Cross Border)

There is a 1992 Local Currency – Single Jurisdiction ISDA Master Agreement intended for use by parties in the same jurisdiction to transact OTC derivatives transactions in a single currecy. The 1992 Local Currency – Single Jurisdiction ISDA Master Agreement is however not as widely used as the 1992 ISDA Master Agreement (Multicurrency – Cross Border), which, notwithstanding its title, is versatile and can be used also by parties in the same jurisdiction and transact in multiple currency OTC derivatives transactions.

2002 ISDA Master Agreement

The 2002 ISDA Master Agreement updates the 1992 ISDA Master Agreement (Multicurrency – Cross Border) and includes some key changes such as the new Close-out Amount and the Force Majeure Termination Event.

ISDA Master Agreement Standard Terms

The printed form standard terms of the ISDA Master Agreements include non transaction specific terms such as payment and delivery, conditions precedent, default, early termination, payment netting, representations and other provisions.

ISDA Master Agreement Schedule

The printed form of the standard provisions of the ISDA Master Agreement provide the non transaction specific terms and the Schedule of the ISDA Master Agreement allows the parties to ‘bespeake’ the ISDA Master Agreement to suit the purpose of the parties. The schedule allows the parties to make elections (select alternative provisions), include additional detail which supplements the standard provisions, amend or even ‘disapply’ the standard provisions of the ISDA Master Agreement.

Confirmations and Single Agreement

While the printed form standard provisions and the schedule of the ISDA Master Agreement together form a framework of terms, the transaction specific terms (e.g. notional amount, effective date, termination date, currency, calculation periods) of a transaction are set out in the Confirmation relating to the transaction. All the transactions constitute a single agreement between the parties.

Credit Support Annexes

To mitigate the risk of loss arising from the default of a swap counterparty, a party to the swap transactions will ask the swap counterparty to post collateral to secure the swap transactions. The swap transactions are valued at regular intervals on ‘marked to market’ basis to determine the exposure of each party to the swap transactions. The ‘out-of-money’ party will be required to post collateral to the party who is ‘in-the-money’. The terms of collateral posting (and the returning) are governed by the credit support documents published by ISDA. They include:

  • The 1994 Credit Support Annex (Security Interest – New York Law), whereby a security interest is created under New York law;
  • The 1995 Credit Support Annex (Transfer – English Law), where the collateral is transferred outright to the secured party, subject to a obligation to return the same when the obligation being secured is not longer outstanding;
  • The 1995 Credit Support Deed (Security Interest – English Law), which creates a security interest under English law; and
  • The 1995 and 2008 Credit Support Annexes (Japanese Law), whereby security interest under Japanese law is created.

The credit support annexes (and deed) are drafted for use with the 1992 ISDA Master Agreement. For use with a 2002 ISDA Master Agreement, the 2002 Master Agreement Protocol should be incorporated. Alternatively, amendments should be made to be used with the 2002 ISDA Master Agreement.

ISDA Master Agreement Section by Section Guide

Preamble to the ISDA Master Agreement

ISDA Master Agreement Preamble |

Section 1. Interpretation

Definitions and Inconsistency (1(a) and (b)) | Single Agreement (1(c)) |

Section 2. Obligations

Payments, Delivery & Conditions Precedent (2(a)) | Change of Account (2(b)) | Payment Netting (2(c)) | Multiple Transaction Payment Netting (2(c)) | Indemnifiable Tax (2(d)) | Default Interest (2(e)) |

Section 3. Representations

Representations (3) |

Section 4. Agreements

Furnish Specified Information (4(a)) | Maintain Authorisations (4(b)) | Comply with Laws (4(c)) | Tax Agreement (4(d)) | Payment of Stamp Tax (4(e)) |

Section 5. Events of Default and Termination Event

Events of Default (5(a)) | Failure to Pay or Deliver (5(a)(i)) | Breach, Repudiation of Agreement (5(a)(ii)) | Default under Specified Transaction (5(a)(v)) | Cross Default (5(a)(vi)) | Bankruptcy Event of Default (5(a)(vii)) | Termination Events (5(b)) | Illegality Termination Event (5(b)(i)) | Credit Event Upon Merger (5(b)(v)) | Additional Termination Events (5(b)(vi)) | Event of Default and Termination Event Table |

Section 6. Early Termination; Close-out Netting

Right to Terminate Following Event of Default (6(a)) | Automatic Early Termination (6(a)) | Effect of Designation (6(c)) | Termination Amount Calculation and Payment (6(d)) | Close-out Amount | Payments on Early Termination (6(e)) | Set-off (6(f)) |

Section 7. Transfer

Transfer |

Section 8. Contractual Currency

Contractual Currency |

Section 9. Miscellaneous

Miscellaneous |

Section 10. Offices; Multibranch Parties

Multibranch Party (10) |

Section 11. Expenses

Expenses under ISDA Master Agreement (11) |

Section 12. Notices

Notices under ISDA Master Agreement |

Section 13. Governing Law and Jurisdiction

Governing Law and Jurisdiction | Jurisdiction (13(b)) | Service of Process (13(c)) | Waiver of Immunities (13(d)) |

Section 14. Definitions

Credit Support Provider | Indemnifiable Tax (2(d)) | Local Business Day | Market Quotation | Specified Entity | Specified Indebtedness | Specified Transaction | Termination Currency |

ISDA Master Agreement Schedule

This section of the ISDA Master Agreement Guide organises the usual elections made in the Schedule and examples of provisions used in the market to amend certain provisions in the ISDA Master Agreement. Please also see the articles ISDA schedule, 1992 ISDA Master Agreement Schedule Guide, 2002 ISDA Master Agreement Schedule Guide.

Part 1

Specified Transaction, Threshold Amount, Termination Currency |

Part 2

Part 3

Part 4

Part 5

Separate Agreements | Introduction to Part 5 | ISDA Master Agreement Part 5 |

Part 6

Part 6 ISDA Master Agreement Schedule |

ISDA Master Agreement Articles

Interpretation of ISDA Master Agreement | An Intro to ISDA Master Agreements | 2002 ISDA Master Agreement | credit support annexes | Confirmation | ISDA Master Agreement Definitions Table | Close-out Netting |

derivativeslawyer.com

Last updated 5 June 2011

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The above notes are intended to highlight issues and provide only general outlines and not intended to be comprehensive nor legal advice. Where applicable, the same should be read in conjunction with, and are qualified in their entirety by, the full provisions of the relevant ISDA provisions and definitions. They shall never be used in place of professional advice. We accept no responsibility for any loss arising from any action taken or not taken by anyone using this material or using this material in conjunction with any ISDA documentation in reliance thereof. If you have any question, please contact us.

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