Template:Isda Preamble summ

Everyone, once, stares at that gnomic title and thinks, “okay, what the hell is this all about?”

Like all good stories, the ISDA starts with a {{ {{{1}}}|Preamble}}. This is just the loosener before things really get going. There is not usually a lot to see in a preamble, but a good writer sets the scene, lays some groundwork and casually calls the reader’s attention to things that later will become important — the proverbial rifle hanging above the fireplace that goes off in the third act. So it is with the ISDA — though that is where the similarities with Chekhov end. Before long, it will go full Dostoyevsky on us.

The ISDA Master Agreement is the basic framework that applies to anyone who touches down on planet ISDA.

All usable versions of the ISDA have a tri-partite form: Pre-printed Master, {{{{{1}}}|Schedule}}, {{{{{1}}}|Confirmation}} and — well, this is controversial: for is it, or is it not, part of the ISDA Master Agreement? — Credit Support Annex.

There are three versions still conceivably in use:

2002 ISDA

The still, after all these years, state-of-the-art 2002 ISDA. This is the most popular version — it took industry participants an awfully long time to get comfortable with it, despite its innovations being largely sensible, but now most of the European and Asian markets trade on the 2002 ISDA, and we sense even the Americans are coming to reluctant terms with it.

1992 ISDA

The 1992 ISDA was the first really global, pan-transactional, earth-shaking version of the ISDA master agreement. It is still popular with traditionalists, those who can’t abide a one-day grace period for {{{{{1}}}|Failure to Pay or Deliver}}, and Americans.

Until quite recently a good part of the American market was still on the 1992 ISDA, although most of those heavily modified to take in most of the innovations of the 2002 ISDA, to the point where the refusal to budge looks to be largely down to the colossal weight of institutional inertia, of just basic bloody-mindedness. But the anecdotal sense we have is that even in New York, these days, the 2002 ISDA is the master agreement of choice for the discerning ninja.

The fact that there is so much institutional reluctance to update to a new agreement should tell us a good deal, both good and bad, about how people in the financial services industry behave, and how quickly things really change.

Perhaps had the 2002 ISDA been more radical it might have stood a greater chance of adoption. On the other hand, the further the fruit falls from the tree, the greater chance of outright failure. Just ask “Flight 19”, the poor, doomed Linklaters team who drafted the 2011 Equity Derivatives Definitions.

1987 ISDA

The 1987 ISDA Interest Rate and Currency Exchange Agreement — it wasn’t, by name, a comprehensive master agreement — is all but a dead letter now. But, we sense, not quite.

Just as there are still soldiers in the Burmese jungle fighting the Second World War, through inattention or truculence there may be pockets, embedded deep in the impassable hinterlands of structured finance who still cling to the 1987 ISDA, notwithstanding its well-recognised shortcomings. If you come across one of these, proceed with caution: 1987 ISDAs don’t have a lot of safety features a modern derivatives counterparty relies on, so are only for real die-hard vinyl junkies and weirdos.

Non-functional versions

There are two non-functional versions:

1985 ISDA Code: These days interesting only for its place in the fossil record — and a witty acrostic that points to a playfulness among the First Men that has long since vanished, the 1985 ISDA Code was out of use well before the millennium. The JC only found out about it when visiting a retired ninja in a care home in 2015, and at first assumed it was some sort of urban myth or in-joke. But apparently not.

2008 ISDA: The 2008 ISDA Decentralised Automomous Agreement — a “this-fixes-everything, on-chain, smart, artificially intelligent” was introduced during, and tragically destroyed by, the Global Financial Crisis.

Oh, all right there isn’t a 2008 ISDA. Never was. This one is a running JC in-joke. Talking to yourself might not be the first sign of madness, but having in-jokes with yourself might be.

Industry associations

ISDA, which publishes the ISDA, was the “International Swap Dealers Associations, Inc.” — interesting plural, that — but in any case, outwardly a sell-side industry association. Sometime between 1992 and 2002, it rebranded itself as the “International Swaps and Derivatives Association, Inc.”: singular, at the same time more unitary and more inclusive sounding, but still in spirit the same old ISDA, stake-held predominantly by the largest broker-dealers on the face of the Earth.

It may have aspirations to conquer the world — increasingly, it seems hell-bent on doing so, encroaching on the commodities, carbon, securities financing and crypto domains — but for now ISDA remains a “dealer-community” association, largely devoted to the swap.

These days the “buy-side lobby” is bigger, more organised and better represented than it used to be, with the following associations representing its interests:

AIMA (the Alternative Investment Management Association)
EFAMA (the European Fund and Asset Management Association)
The MFA (the Managed Funds Association) — not to be confused, by the way, with the Fund Management Association of Kenya — and
The AI (the Investment Association).