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{{quote|{{D|Bilateral|/ˌbaɪˈlætᵊrᵊl/|adj}}Having, or relating to, two sides; affecting both sides equally.}}
{{quote|{{D|Bilateral|/ˌbaɪˈlætᵊrᵊl/|adj}}Having, or relating to, two sides; affecting both sides equally.}}


{{smallcaps|[[Party A and Party B - ISDA Provision|In this episode]]}} the JC considers the “bilateral” nature of the {{isdama}}, why swap participants are called “[[counterparty|counterparties]]” what this confusing “{{isdaprov|Party A}}” and “{{isdaprov|Party B}}” business is all about.  
{{smallcaps|[[Party A and Party B - ISDA Provision|In this episode]]}} the JC considers the “bilateral” nature of the {{isdama}}, why swap participants alone amongst financial players are called “[[counterparty|counterparties]]”, and what this confusing “{{isdaprov|Party A}}” and “{{isdaprov|Party B}}” business is all about.  


These labels set the ISDA apart from its fellow [[finance contract]]<nowiki/>s. They give it a sort of otherworldly aloofness; a sense of social justice. Other banking and broking transactions use labels which help you orient who, in the [[power structure]], is who: a loan has a “[[Lender]]” (always the bank) and “[[Borrower]]” always the punter. A brokerage has “[[Broker]]” (master) and “[[Customer]]” (servant).<ref>Okay I know ''theoretically'' it is the other way around, but it isn’t, is it? You are hooked up to the great battery grid, just like everyone else. Admit it.</ref>
The unpresumptuous way it labels the parties to a Transaction sets the ISDA apart from its fellow [[finance contract]]<nowiki/>s. They give it a sort of otherworldly aloofness; a sense of utopian equality; social justice almost. Other finance contracts are more visceral. They label their participants to make it clear who, in the [[power structure]], is who: a loan has a “[[Lender]]” — the bank; always the master — and “[[Borrower]]” — the punter; always the servant. A brokerage agreement has a “[[Broker]]” (master) and “[[Customer]]” (servant). Okay, I know ''theoretically'' it is meant to be the other way around; the customer is meant to be king and everything; but when it comes to finance it isn’t, is it? We are all hooked up to the great battery grid, for the pleasure of our banking overlords and the [[The domestication of law|pan-dimensional mice]] that control them.  


But not the {{isdama}}. From the outside its framers — the [[First Men]] — opted for the more gnomic, interchangeable and ''equal designators'' “{{isdaprov|Party A}}” and “{{isdaprov|Party B}}”.
But not when it comes to the {{isdama}}. From the outset, the [[First Men]] who framed it opted for the more gnomic, interchangeable and ''equal'' labels “{{isdaprov|Party A}}” and “{{isdaprov|Party B}}”.


Why? Well, we learn it from our first encounter of an ISDA Schedule. ''[[The bilaterality, or not, of the ISDA|Bilaterality]]''.
Why? Well, we learn it from our supervising associate, when we first encounter a [[Schedule - ISDA Provision|Schedule]]. ''[[The bilaterality, or not, of the ISDA|Bilaterality]]''.


===Bilaterality===
===Bilaterality===
{{smallcaps|A belief in}} even-handedness gripped the ones whose [[deep magic]] forged the runes from which the [[First Swap]] was born.  
{{smallcaps|A belief in}} even-handedness gripped the ones whose [[deep magic]] forged the runes of that ancient [[First Swap]]. Traditional finance contracts imply a relationship of dominance and subservience: a large, institutional “have” indulging a small commercial “have-not” with debt finance, for which privilege it extracts excruciating [[covenant]]<nowiki/>s, gives not a jot in return, and enjoys a preferred place in the queue among the [[customer]]’s many scrapping creditors.  
 
Where most finance contracts imply some sort of dominance and subservience.  A large institutional “have” indulges a small commercial “have-not” with debt finance, for which privilege the bank extracts excruciating covenants and enjoys a preferred place in the queue for repayment among the customer’s many scrapping creditors.


But [[swaps]], as the [[First Men]] saw them, are not like that.  
But [[swaps]], as the [[First Men]] saw them, are not like that.  


“A swap contract,” they intoned, “is an exchange among peers. It is an equal-opportunity sort of thing; Biblically righteous in that, under its awnings, one be neither lender nor borrower, but an honest rival for the favour of the Lady Fortune, however capricious may she be.”  
{{Quote|“A swap,” they decreed, “shall be an exchange among peers. It is an equal-opportunity sort of thing; righteous in that, under its auspices, one is neither lender nor borrower, but simply an honest rival for the favour of the Lady Fortune, however capricious may she be.”


“Thus, we are equals. Rivals. ''Counterparties''”.  
“Thus, those who swap things are not master and servant, but equals. ''Rivals''. Counterparties”.}}


Covenants, privileges of credit support and so on may, thereby, flow either way. They may flow ''both'' ways. In our time of [[regulatory margin]], they usually do.
Covenants, privileges of credit support and so on may, thereby, flow either way. They may flow ''both'' ways. In our time of [[regulatory margin]], they usually do.
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And, to be sure, swaps ''are'' different from loans and brokerage arrangements. They start off “at market”, where all is square. Either party may be long or short, fixed or floating: at the moment the trade is struck, the world infused with glorious possibility.  
And, to be sure, swaps ''are'' different from loans and brokerage arrangements. They start off “at market”, where all is square. Either party may be long or short, fixed or floating: at the moment the trade is struck, the world infused with glorious possibility.  


One fellow’s fortunes may rise or fall relative to the other’s and, as a result, she may ''owe'' (in the vernacular, be “[[out-of-the-money]]”) or ''be owed'' (“[[in-the-money]]”). And swaps, too, are professional instruments. Moms and pops, [[Belgian dentist]]s and the like may take loans and buy bonds, but they don’t, and never have, entered {{isdama}}s.<ref>They may trade [[contracts for difference]] and make spread bets with brokers, but these are standardised, smaller contracts.</ref>
One fellow’s fortunes may rise or fall relative to the other’s and, as a result, she may ''owe'' (in the vernacular, be “[[out-of-the-money]]”) or ''be owed'' (“[[in-the-money]]”). And swaps, too, are the preserve of professionals, who know what they are doing. Usually, they know it better than the bank employees they face, having once ''been'' bank employees. Moms and pops, [[Belgian dentist]]s and the like may take loans, buy bonds, have a flutter on the share market and even trade cryptocurrencies but they don’t, and never have, entered {{isdama}}s.<ref>They may trade [[contracts for difference]] and make spread bets with brokers, but these are standardised, smaller contracts.</ref> The ISDA is for equals.


Curiously, the pre-printed {{isdama}} itself never uses the expressions “Party A” or “Party B”. [[2002 ISDA wikitext|Have a look, if you don’t believe me]]. Being genuinely bilateral, it never has to. Being arbitrary assignations at trade level, party-specific labels only get a mention once the symmetry breaks down. That happens in the {{isdaprov|Schedule}} and in {{isdaprov|Confirmation}}s, to be clear who is who on a given trade, or for a given bespoke convenant: who pays the [[fixed rate]] and who the [[Floating rate|floating]]; which thresholds, maxima, minima, covenants, details, agents and terms apply to which counterparty. This much is necessarily different. Nothing beyond: the {{isdama}} assumes you already know who is who, having agreed it in the {{isdaprov|Schedule}}.
That said, the pre-printed part of {{isdama}} itself does not use the expressions “Party A” or “Party B”. [[2002 ISDA wikitext|Have a look, if you don’t believe me]]. Being genuinely bilateral, it never has to. Party-specific labels are only needed once the studied symmetry of the Master Agreement gives way to the need, articulated in in the {{isdaprov|Schedule}} and in {{isdaprov|Confirmation}}s, to be clear who is taking which side on a given trade, or who is giving which customised covenant. They may be equals, but we still need to know who is going to pay the [[fixed rate]] and who the [[Floating rate|floating]]; which thresholds, maxima, minima, covenants, details, agents and terms apply to which party. This much is necessarily different. Nothing beyond: the {{isdama}} assumes you already know who is who, having agreed it in the {{isdaprov|Schedule}}.


So we agree: for this swap trading relationship we will call you “Party B”, and me “Party A”. Beyond these colourless labels, we are equal. These generic terms hark from a time where the idea of “find and replace all” in an electronic document seemed like [[Tipp-Ex]]-denying, devilish magic.  
So we agree: for this swap trading relationship we will call you “Party B”, and me “Party A”. Beyond these colourless labels, we are equal. These generic terms hark from a time where the idea of “find and replace all” in an electronic document seemed like [[Tipp-Ex]]-denying, devilish magic.  
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