Representations - ISDA Provision

2002 ISDA Master Agreement A Jolly Contrarian owner’s manual™ Go premium Overview — Summary — Premium — See also — Wikitext Crosscheck: →’87 equivalent →’92 equivalent →’02 equivalent 3 in a Nutshell™ The JC’s Nutshell™ summary of this term has moved uptown to the subscription-only ninja tier. For the cost of ½ a weekly 🍺 you can get it here. Sign up at Substack. You can even ask questions! Ask about it here. Original text 3. Representations Each party makes the representations contained in Sections 3(a), 3(b), 3(c), 3(d), 3(e) and 3(f) and, if specified in the Schedule as applying, 3(g) to the other party (which representations will be deemed to be repeated by each party on each date on which a Transaction is entered into and, in the case of the representations in Section 3(f), at all times until the termination of this Agreement). If any “Additional Representation” is specified in the Schedule or any Confirmation as applying, the party or parties specified for such Additional Representation will make and, if applicable, be deemed to repeat such Additional Representation at the time or times specified for such Additional Representation. 3(a) Basic Representations. 3(a)(i) Status. It is duly organised and validly existing under the laws of the jurisdiction of its organisation or incorporation and, if relevant under such laws, in good standing; 3(a)(ii) Powers. It has the power to execute this Agreement and any other documentation relating to this Agreement to which it is a party, to deliver this Agreement and any other documentation relating to this Agreement that it is required by this Agreement to deliver and to perform its obligations under this Agreement and any obligations it has under any Credit Support Document to which it is a party and has taken all necessary action to authorise such execution, delivery and performance; 3(a)(iii) No Violation or Conflict. Such execution, delivery and performance do not violate or conflict with any law applicable to it, any provision of its constitutional documents, any order or judgment of any court or other agency of government applicable to it or any of its assets or any contractual restriction binding on or affecting it or any of its assets; 3(a)(iv) Consents. All governmental and other consents that are required to have been obtained by it with respect to this Agreement or any Credit Support Document to which it is a party have been obtained and are in full force and effect and all conditions of any such consents have been complied with; and 3(a)(v) Obligations Binding. Its obligations under this Agreement and any Credit Support Document to which it is a party constitute its legal, valid and binding obligations, enforceable in accordance with their respective terms (subject to applicable bankruptcy, reorganisation, insolvency, moratorium or similar laws affecting creditors’ rights generally and subject, as to enforceability, to equitable principles of general application (regardless of whether enforcement is sought in a proceeding in equity or at law)). 3(b) Absence of Certain Events. No Event of Default or Potential Event of Default or, to its knowledge, Termination Event with respect to it has occurred and is continuing and no such event or circumstance would occur as a result of its entering into or performing its obligations under this Agreement or any Credit Support Document to which it is a party. 3(c) Absence of Litigation. There is not pending or, to its knowledge, threatened against it, any of its Credit Support Providers or any of its applicable Specified Entities any action, suit or proceeding at law or in equity or before any court, tribunal, governmental body, agency or official or any arbitrator that is likely to affect the legality, validity or enforceability against it of this Agreement or any Credit Support Document to which it is a party or its ability to perform its obligations under this Agreement or such Credit Support Document. 3(d) Accuracy of Specified Information. All applicable information that is furnished in writing by or on behalf of it to the other party and is identified for the purpose of this Section 3(d) in the Schedule is, as of the date of the information, true, accurate and complete in every material respect. 3(e) Payer Tax Representation. Each representation specified in the Schedule as being made by it for the purpose of this Section 3(e) is accurate and true. 3(f) Payee Tax Representations. Each representation specified in the Schedule as being made by it for the purpose of this Section 3(f) is accurate and true. 3(g) No Agency. It is entering into this Agreement, including each Transaction, as principal and not as agent of any person or entity. See ISDA Comparison for a comparison between the 1992 ISDA and the 2002 ISDA. The Varieties of ISDA Experience Subject 2002 (wikitext) 1992 (wikitext) 1987 (wikitext) Preamble Pre Pre Pre Interpretation 1 1 1 Obligns/Payment 2 2 2 Representations 3 3 3 Agreements 4 4 4 EODs & Term Events 5 Events of Default: FTPD • Breach • CSD • Misrep • DUST • Cross Default • Bankruptcy • MWA Termination Events: Illegality • FM • Tax Event • TEUM • CEUM • ATE 5 Events of Default: FTPD • Breach • CSD • Misrep • DUST • Cross Default • Bankruptcy • MWA Termination Events: Illegality • Tax Event • TEUM • CEUM • ATE 5 Events of Default: FTPD • Breach • CSD • Misrep • DUSS • Cross Default • Bankruptcy • MWA Termination Events: Illegality • Tax Event • TEUM • CEUM Early Termination 6 Early Termination: ET right on EOD • ET right on TE • Effect of Designation • Calculations; Payment Date • Payments on ET • Set-off 6 Early Termination: ET right on EOD • ET right on TE • Effect of Designation • Calculations • Payments on ET • Set-off 6 Early Termination: ET right on EOD • ET right on TE • Effect of Designation • Calculations • Payments on ET Transfer 7 7 7 Contractual Currency 8 8 8 Miscellaneous 9 9 9 Offices; Multibranch Parties 10 10 10 Expenses 11 11 11 Notices 12 12 12 Governing Law 13 13 13 Definitions 14 14 14 Schedule Schedule Schedule Schedule Termination Provisions Part 1 Part 1 Part 1 Tax Representations Part 2 Part 2 Part 2 Documents for Delivery Part 3 Part 3 Part 3 Miscellaneous Part 4 Part 4 Part 4 Other Provisions Part 5 Part 5 Part 5 Resources and Navigation Index: Click ᐅ to expand: ISDA

Comparisons

Redlines

• 1987 ⇒ 1992: Redline of the ’92 vs. the ’87: comparison (and in reverse)
• 1992 ⇒ 2002: Redline of the ’02 vs. the ’92: comparison (and in reverse)
• 1987 ⇒ 2002: Redline of the ’92 vs. the ’87: comparison (and in reverse)

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Discussion

As the comparisons above illustrate the Representations have remained largely intact since the 1987 ISDA.

There is no “No Agency” representation in the 1992 ISDA or the 1987 ISDA. A fun part of the ritual of negotiating a 1992 ISDA always was — in America, we imagine, still is — to put one in, so when those kill-joys on ISDA’s crack drafting squad™ shunted one into the 2002 ISDA it will have ruined a few people’s days — so much so that, in some quarters, they still use the 1992 ISDA as a standard. Americans, for example.

A JC digression, if I may. The 2002 ISDA was published now over two decades ago. Since 1992, a great deal has happened which the derivatives industry has learned from: the Internet; email; Enron, LTCM, the Russian Crisis, the GFC, the LIBOR scandal, COVID, the rise and fall of asset classes, cryptocurrencies and artificial intelligence (... yes and they are sure to rise again, and crush us all. Keep holding your breath). Nevertheless, we are stuck in our ways. Not only has the 2002 ISDA not been updated, or even had an update proposed, large parts of the derivatives market — and the most sophisticated, heavy-hitting parts of that market, what is more: the American parts — still trade on the 1992 Master Agreement.

We mention this not to make fun of Americans, or the derivatives industry more generally, however they richly deserve it — we do plenty enough of that in these pages as it is — but to temper the expectations of those who think anything is going to change any time soon. There are far too many vested, rent-seeking interests in things chuntering along just how they are for anyone to be seriously confronted with the idea of having to adopt anything new. Allen Farrington might claim that Bitcoin fixes a lot of things: it does not fix this.

Basics

If you want any special extra Representations over and above the boring ones in Section 3, stick them in Part 5 of the Schedule, or maybe a master confirmation, be sure to label them “Additional Representations” and, if the fancy catches you, have the representor deem them repeated on the commencement of any new Transaction, the anniversary of the ISDA Master Agreement or whenever, in a moment of weakness, insecurity or indolence, your operations team feels like reaching out to the counterparty and asking it to say them again. They’ll love you for it.

Yes, Misrepresentation is an Event of Default

A breach of any of these Representations when made (or deemed repeated) (except a Payer or Payee Tax Representation, but including any Additional Representation is an Event of Default. Eventually.

Additional Representations as Additional Termination Events

In the case of Additional Representations this can be somewhat drastic, especially if your Additional Representation is Transaction-specific (for example India, China and Taiwan investor status reps for equity derivatives), and it would seem churlish to close out a whole ISDA Master Agreement on their account.

Then again, show me a swap dealer who would detonate an entire swap trading relationship with a solvent counterparty and I’ll show you a moron — but, as we know, opposing legal eagles operate on the presumption that everyone else is a moron and thus tend to be immune to such grand rhetorical flourishes, and regard such appeals to basic common sense as precisely such flourishes, so don’t expect that argument to carry the day, however practically true it may be.

Instead, expect to encounter leagues of agonising drafting, but there are easier roads to travel. Try:

These representations will be Additional Representations, except that where they prove to be materially incorrect or misleading when made or repeated it will not be an Event of Default but an Additional Termination Event, where the Transactions in question are the Affected Transactions and the misrepresenting party is the sole Affected Party.

Premium content Here the free bit runs out. Subscribers click 👉 here. New readers sign up 👉 here and, for ½ a weekly 🍺 go full ninja about all these juicy topics👇 JC’s “nutshell” summary of the clause Background reading and long-form essays Section 3(a)(i): Status Section 3(a)(ii): Powers Section 3(a)(iii): No Violation or Conflict Section 3(a)(iv): Consents Section 3(a)(v): Obligations Binding Maintenance of representations Representations by investment managers and agents Additional Representations Deemed repetition On representations and warranties generally

See also

• Representations and warranties