1987 ISDA Interest Rate and Currency Exchange Agreement: Difference between revisions

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{{isda87anat|
{{a|isda|{{image|Musket|jpg|An unloaded {{1987ma}}}}}}Well-and-truly out-of-date version of the {{isdama}}, replaced first by the {{1992isda}} and then the {{2002isda}}, the {{1987isda}} is nonetheless useful for forensic archaeologists interested to know how the state-of-the-art version got to be how it is today.<ref>There are the odd [[Fossil record|fossils]] who still insist on using it, though most of those have long-since been taken out and shot, a process now happening to disciples of the {{1992ma}}.</ref>
[[File:British WWI Tank Britannia 08 06 014248.jpg|450px|thumb|center|An [[87 ISDA]] on manouevres in 1991]]
}}
Well-and-truly out-of-date version of the {{isdama}}, replaced first by the {{1992isda}} and then the {{2002isda}}, the {{1987isda}} is nonetheless useful for forensic archaeologists interested to know how the state of the art version got to be how it is today.<ref> And it is quite the yarn: you don’t get as shot-up and crazed as an {{isdama}} without some scrapes and shootouts along the way.


There are the odd [[Fossil record|fossils]] who still insist on using it, though most of those have long-since been taken out and shot, a process now happening to disciples of the {{1992ma}}.</ref>. Nineteen eighty-seven was a different world; the very first swap transaction<ref>Between IBM and the World Bank — see [[swap history]] for more.</ref> was only consummated in 1981. The swap master agreement was a nascent idea to streamline the documentation between counterparties, and to capture this nascent idea of [[close-out netting]], but was basically predicated on the legal precepts of banking facilities. An {{isdama}} is not, of course, any kind of banking facility: certainly not if it is [[Variation margin|daily-margined]], as is now required by regulation for most of the 600 trillion of swaps transacted annually.  
And it is quite the yarn: you don’t get as shot-up and crazed as an {{isdama}} without some scrapes and shootouts along the way.


Many of the lending-derived credit concepts in the {{isdama}} are practically redundant, but they hang on — artifacts of the great [[doctrine of precedent|dogma of precedent]]<ref>Did I say “dogma”? I meant doctrine!</ref>. If it is in the agreement, it must be there for a reason, and if I cannot conceive of one that must be down to my own mental frailty, rather than the caution or basic fussiness of our forefathers and foremothers.
Nineteen eighty-seven was a different world; the very first swap transaction<ref>Between IBM and the World Bank — see [[swap history]] for more.</ref> was only consummated six years previously. The swap master agreement was a nascent idea to streamline the documentation between counterparties, and to capture this nascent idea of [[close-out netting]], but was predicated on the legal precepts of banking facilities. An {{isdama}} is not, of course, any kind of banking facility: certainly not if it is [[Variation margin|daily-margined]], as is now required by regulation for most of the 600 trillion of swaps transacted annually.
 
Many of the lending-derived credit concepts in the {{isdama}} are practically redundant, but they hang on — artefacts of the great [[doctrine of precedent|dogma of precedent]].<ref>Did I say “dogma”? I meant doctrine!</ref> If it is in the agreement, it must be there for a reason, and if I cannot conceive of one that must be down to my own mental frailty, rather than the caution or basic fussiness of our forefathers and foremothers.


So if you find something odd, check the [[fossil record]] to see if it has been there from the outset. If it has — for example, the 20-day limit on close out notices under Section {{isda87prov|6(a)}} — then there’s a fair chance the market developments of the last 32 years might have rendered it pointless.
So if you find something odd, check the [[fossil record]] to see if it has been there from the outset. If it has — for example, the 20-day limit on close out notices under Section {{isda87prov|6(a)}} — then there’s a fair chance the market developments of the last 32 years might have rendered it pointless.


===Differences between {{1987isda}} and {{1992isda}}===
====Differences between {{1987isda}} and {{1992isda}}====
The {{1992ma}} was introduced principally, to:
{{1987 v 1992 comparison summary|isda92prov}}
*'''Expand range of products covered''': Expand beyond [[interest rate derivatives]] and [[currency derivatives]] and promote the benefit of [[close-out netting]]
*'''Market Developments''': Reflect legal developments between 1987 and 1992.
*'''[[Physical delivery]]''': Permit [[physical delivery]]
*'''{{isdaprov|Settlement Amount}}s''': Introduce greater flexibility for determining {{isdaprov|Settlement Amount}}s on termination of {{isdaprov|Transactions}} (introducing the {{isdaprov|Loss}}, {{isdaprov|Market Quotation}}, {{isdaprov|First Method}} and {{isdaprov|Second Method}} regimes thereafter replaced in the {{2002ma}} by {{isdaprov|Close-out Amount}}).
*'''Two-way payments on termination''': Under the {{1987ma}} a party may not receive termination payments (this is the "limited two-way payment" provision).
*'''Settlement netting''': more flexibility for netting groups of transactions under Section {{isda87prov|2}} - under the {{1987isda}} you could either [[net]] just within single transactions or across all {{isda87prov|Transactions}}.


there are some others - a helpful guide can be found [http://www.google.co.uk/url?sa=t&rct=j&q=difference%20between%201987%20isda%20and%201992%20isda&source=web&cd=6&ved=0CFYQFjAF&url=http%3A%2F%2Fwww.otcguide.com.au%2Fotcwr%2Fpdf%2F1573077_6.pdf&ei=3uwkUOSYOdOChQf71IGYCw&usg=AFQjCNGsjOd2eJW8xzQhB-xeglU_-EUuCA here]
There are others.


====Relevant Provisions====
{{sa}}
{{isdaquote|{{clause|1987|ISDA|Interest Rate and Currency Exchange Agreement|5(a)(vii)}}|5(a)(vii)|1987}}
*{{1992ma}}
{{isdaquote|{{clause|1987|ISDA|Interest Rate and Currency Exchange Agreement|6(a)}}|6(a)|1987}}
*{{2002ma}}
*[[1985 ISDA Code of Standard Wording, Assumptions and Provisions for Swaps]]
{{ref}}

Latest revision as of 12:54, 5 September 2024

ISDA Anatomy™
An unloaded 1987 ISDA
Index: Click to expand:Navigation
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: FTPDBreachCSDMisrepDUSTCross DefaultBankruptcyMWA Termination Events: IllegalityFMTax EventTEUMCEUMATE 5 Events of Default: FTPDBreachCSDMisrepDUSTCross DefaultBankruptcyMWA Termination Events: IllegalityTax EventTEUMCEUMATE 5 Events of Default: FTPDBreachCSDMisrepDUSSCross DefaultBankruptcyMWA Termination Events: IllegalityTax EventTEUMCEUM
Early Termination 6 Early Termination: ET right on EODET right on TEEffect of DesignationCalculations; Payment DatePayments on ETSet-off 6 Early Termination: ET right on EODET right on TEEffect of DesignationCalculationsPayments on ETSet-off 6 Early Termination: ET right on EODET right on TEEffect of DesignationCalculationsPayments 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
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Well-and-truly out-of-date version of the ISDA Master Agreement, replaced first by the 1992 ISDA and then the 2002 ISDA, the 1987 ISDA is nonetheless useful for forensic archaeologists interested to know how the state-of-the-art version got to be how it is today.[1]

And it is quite the yarn: you don’t get as shot-up and crazed as an ISDA Master Agreement without some scrapes and shootouts along the way.

Nineteen eighty-seven was a different world; the very first swap transaction[2] was only consummated six years previously. The swap master agreement was a nascent idea to streamline the documentation between counterparties, and to capture this nascent idea of close-out netting, but was predicated on the legal precepts of banking facilities. An ISDA Master Agreement is not, of course, any kind of banking facility: certainly not if it is daily-margined, as is now required by regulation for most of the 600 trillion of swaps transacted annually.

Many of the lending-derived credit concepts in the ISDA Master Agreement are practically redundant, but they hang on — artefacts of the great dogma of precedent.[3] If it is in the agreement, it must be there for a reason, and if I cannot conceive of one that must be down to my own mental frailty, rather than the caution or basic fussiness of our forefathers and foremothers.

So if you find something odd, check the fossil record to see if it has been there from the outset. If it has — for example, the 20-day limit on close out notices under Section 6(a) — then there’s a fair chance the market developments of the last 32 years might have rendered it pointless.

Differences between 1987 ISDA and 1992 ISDA

The 1992 ISDA was introduced principally, to:

There are others.

See also

References

  1. There are the odd fossils who still insist on using it, though most of those have long-since been taken out and shot, a process now happening to disciples of the 1992 ISDA.
  2. Between IBM and the World Bank — see swap history for more.
  3. Did I say “dogma”? I meant doctrine!