No Agency - ISDA Provision: Difference between revisions
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===Internal agency model=== | ===Internal agency model=== | ||
It is not beyond the paranoid fantasies of a US [[tax attorney]] — a rich, baroque tapestry indeed — to want to “[[deem]]” a swap counterparty to be an agent for one | It is not beyond the paranoid fantasies of a US [[tax attorney]] — a rich, baroque tapestry indeed — to want to “[[deem]]” a swap counterparty to be an agent for one of its affiliates for certain — you know, tax — purposes, even though the [[affiliate]] is not mentioned in the {{t|contract}} and the other side has not the first clue that this [[affiliate]] even exists. | ||
How does this bear on your Section {{isdaprov|3(g)}} representation? As far as your counterparty is concerned, not at all: a fellow acting under an agency he has not disclosed to his counterpart is called a “[[principal]]”. This is all the {{isdaprov|3(g)}} [[representation]] is meant to confirm: [[for the avoidance of doubt]] — of which there wasn’t much anyway — you are not acting on behalf of someone else. Therefore, should you not perform our contract, I can bring my claim against you; you cannot slip out of the tackle by pointing to some under-capitalised [[espievie]] in a banana republic whom you suddenly claim to be representing. I can therefore instruct my [[credit officer]] that the only commercial ''bona fides'' she needs to have in mind, as she slips on her rubber gloves, are yours. It doesn’t matter whether the agency arrangement | How does this bear on your Section {{isdaprov|3(g)}} [[representation]]? As far as your counterparty is concerned, not at all: a fellow acting under an [[agency]] he has not disclosed to his counterpart is called a “[[principal]]”. This is all the {{isdaprov|3(g)}} [[representation]] is meant to confirm: [[for the avoidance of doubt]] — of which there wasn’t much anyway — you are not acting on behalf of someone else. Therefore, should you not perform our contract, I can bring my claim against you; you cannot slip out of the tackle by pointing to some under-capitalised [[espievie]] in a banana republic I didn’t know about whom you suddenly claim to be representing. I can therefore safely instruct my [[credit officer]] that the only commercial ''bona fides'' she needs to have in mind, as she slips on her rubber gloves, are yours. | ||
It doesn’t matter whether the [[agency]] arrangement exists or not: either way, you are liable, as a [[principal]], to me, it is your problem to recover any money you may be owed by your man in Havana. | |||
Now whether such a representation undermines the fantastical aspirations of your [[tax attorney]], on the other hand, is a question only he can answer. | Now whether such a representation undermines the fantastical aspirations of your [[tax attorney]], on the other hand, is a question only he can answer. | ||
Revision as of 14:07, 1 November 2019
You might like our articles about principals and agents, undisclosed agents, undisclosed principals and all that good stuff.
Investment managers as agents
In practice, many ISDA Master Agreements are entered by agents — investment managers and asset managers — on behalf of underlying principals — investment funds, and institutional clients who have appointed them as discretionary investment advisers.
These managers often enter transactions in aggregate and only allocate them to their underlying principals later in the day. This means that the broker will have a nervous few hours before it knows whom it is allowed to sue, though general principles of agency — in particular liability for an undisclosed principal —mean the agent is not quite so footloose and fancy-free as many seem to believe they are.
In a nutshell it is not the end of the world if your counterpart refuses to renounce all agency, as long as you set up the accounts correctly with the underlying principals, and the firm has a robust approach to trade allocation.
Internal agency model
It is not beyond the paranoid fantasies of a US tax attorney — a rich, baroque tapestry indeed — to want to “deem” a swap counterparty to be an agent for one of its affiliates for certain — you know, tax — purposes, even though the affiliate is not mentioned in the contract and the other side has not the first clue that this affiliate even exists.
How does this bear on your Section 3(g) representation? As far as your counterparty is concerned, not at all: a fellow acting under an agency he has not disclosed to his counterpart is called a “principal”. This is all the 3(g) representation is meant to confirm: for the avoidance of doubt — of which there wasn’t much anyway — you are not acting on behalf of someone else. Therefore, should you not perform our contract, I can bring my claim against you; you cannot slip out of the tackle by pointing to some under-capitalised espievie in a banana republic I didn’t know about whom you suddenly claim to be representing. I can therefore safely instruct my credit officer that the only commercial bona fides she needs to have in mind, as she slips on her rubber gloves, are yours.
It doesn’t matter whether the agency arrangement exists or not: either way, you are liable, as a principal, to me, it is your problem to recover any money you may be owed by your man in Havana.
Now whether such a representation undermines the fantastical aspirations of your tax attorney, on the other hand, is a question only he can answer.