Furnish Specified Information - ISDA Provision

ISDA Anatomy™ →Go uptown In a Nutshell™ Section 4(a): 4(a) Furnish Specified Information. It will deliver to the other party (or to such government or taxing authority as it reasonably directs):— (i) any tax documents specified in the Schedule or any Confirmation; (ii) any other documents specified in the Schedule or any Confirmation; and (iii) any other document the other party reasonably requests to minimise withholding tax on any payment (and which would not materially prejudice the provider’s position), if need be accurately completed and executed and delivered as specified in the Schedule or such Confirmation or, otherwise as soon as reasonably practicable. view template 2002 ISDA full text of Section 4(a): 4(a) Furnish Specified Information. It will deliver to the other party or, in certain cases under clause (iii) below, to such government or taxing authority as the other party reasonably directs:― (i) any forms, documents or certificates relating to taxation specified in the Schedule or any Confirmation; (ii) any other documents specified in the Schedule or any Confirmation; and (iii) upon reasonable demand by such other party, any form or document that may be required or reasonably requested in writing in order to allow such other party or its Credit Support Provider to make a payment under this Agreement or any applicable Credit Support Document without any deduction or withholding for or on account of any Tax or with such deduction or withholding at a reduced rate (so long as the completion, execution or submission of such form or document would not materially prejudice the legal or commercial position of the party in receipt of such demand), with any such form or document to be accurate and completed in a manner reasonably satisfactory to such other party and to be executed and to be delivered with any reasonably required certification, in each case by the date specified in the Schedule or such Confirmation or, if none is specified, as soon as reasonably practicable. view template Click here for the text of Section 4(a) in the 1992 ISDA Index: Click ᐅ to expand: ISDA 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: 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 Tell me more Sign up for our newsletter — or just get in touch: for ½ a weekly 🍺 you get to consult JC. Ask about it here.

Section 4(a) of the 1992 ISDA is materially identical.

In the ISDA schedule there's a part — Part 3 as a matter of fact — containing table of Specified Information: documents that the parties agree to deliver to each other at certain times. The table in part 3 itemises what must be delivered, by whom, by when, and whether the Specified Information in question is covered by the Section 3(d) representation as to accuracy and completeness. It will also totally bugger up the formatting in your document. It is a well-known fact that no ISDA negotiator on the face of the earth knows how to format a table in Microsoft Word.

Then again, nor does anyone else.

Not providing documents for delivery is an Event of Default ... eventually

The importance of promptly sending required documents for delivery goes as follows:

• By dint of Section {{{{{1}}}|4(a)}} you agree to furnish each other {{{{{1}}}|Specified Information}} set out in {{{{{1}}}|Part 3}} of the {{{{{1}}}|Schedule}}.
• By dint of Section {{{{{1}}}|5(a)(ii)}} if you don’t then that can be a {{{{{1}}}|Breach of Agreement}} {{{{{1}}}|Event of Default}} (Section {{{{{1}}}|5(a)(ii)}}). Be warned: you must pursue a tortured chain of nested double negatives and carefully parse the interplay between Sections {{{{{1}}}|4(a)}} and {{{{{1}}}|5(a)(ii)}} to grasp this, but it is true.
• But, Section {{{{{1}}}|5(a)(ii)}} imposes a thirty freaking day grace period following notice before a {{{{{1}}}|Breach of Agreement}} counts as an {{{{{1}}}|Event of Default}} allowing termination. (A {{{{{1}}}|Failure to Pay or Deliver}} is excluded from that definition, by the way, because it has its own EOD with a much tighter grace period).
• So if you need a document “furnished” urgently and can’t wait a month for it (you might not, if you are a credit officer and it is a monthly NAV statement, for example) then you must upgrade a simple {{{{{1}}}|5(a)(ii)}} {{{{{1}}}|Breach of Agreement}} to a full-blown {{{{{1}}}|Additional Termination Event}}.
  

The fabulous Section {{{{{1}}}|3(d)}} representation, giving one’s counterparty the right to close out should any so-designated representations turn out not to be true. This is sure to occupy an inordinate amount of your negotiation time — in that it occupies any time at all — because you are as likely to be hit in the face by a live starfish in the Gobi Desert as you are to close out an ISDA Master Agreement because your counterparty is late in preparing its annual accounts. But that’s a personal view and you may not rely on it.

The {{{{{1}}}|3(d)}} representation, in the documents for delivery table in the Schedule, therefore covers only the accuracy and completeness of {{{{{1}}}|Specified Information}} and not (for example) whether {{{{{1}}}|Specified Information}} is delivered at all. For that, see Section {{{{{1}}}|4(a)}} - {{{{{1}}}|Furnish Specified Information}}.

“Covered by the Section {{{{{1}}}|3(d)}} Representation”

If one is required to “furnish” {{{{{1}}}|Specified Information}} under Section {{{{{1}}}|4}}, two things can go wrong:

No show: One can fail to provide it, at all, in which case there is a {{{{{1}}}|Breach of Agreement}}, but be warned: the period before one can enforce such a failure, judged by the yardstick of modern financial contracts, is long enough for a whole kingdom of dinosaurs to evolve and be wiped out; or

It’s cobblers: One can provide the {{{{{1}}}|Specified Information}}, on time, but it can be a total pile of horse ordure. Now, here is a trick for young players: if your {{{{{1}}}|Specified Information}} is, or turns out to be, false, you have no remedy unless you have designated that it is “subject to the Section {{{{{1}}}|3(d)}} representation”. That is the one that promises it is accurate and not misleading.

Might Section 3(d) not cover a representation?

Now you might ask what good an item of {{{{{1}}}|Specified Information}} can possibly be, if Section {{{{{1}}}|3(d)}} didn’t apply and it could be just made up on the spot without fear of retribution — as a youngster, the JC certainly asked that question, and has repeated it over many years, and is yet to hear a good answer — but all we can presume is that in its tireless quest to cater for the unguessable predilections of the negotiating community, ISDA’s crack drafting squad™ left this preposterous option open just in case. It wouldn’t be the first time.

Legal opinions, and Credit Support Documents

A trawl through the SEC’s “Edgar” archive reveals that the sorts of things to which “Covered by Section 3(d) Representation” results in a “No” outcome are rare — but not non-existent. It is things like “Legal opinion from counsel concerning due authorization, enforceability and related matters, addressed to the other party and reasonably acceptable to such other party”, or “{{{{{1}}}|Credit Support Document}}s”.
See further discussion in the sections below.

Annual reports

The other little fiddle — and it is a little fidgety fiddle — is to remark of annual reports that, yes, they are covered by that Section 3(d) representation, but with a proviso:

“Yes; provided that the phrase “is, as of the date of the information, true, accurate and complete in every material respect” in Section {{{{{1}}}|3(d)}} shall be deleted and the phrase “fairly presents, in all material respects, the financial condition and results of operations as of their respective dates and for the respective periods covered thereby” shall be inserted in lieu thereof.”

Withholding under the ISDA

TL;DR: The basic rationale is this:

• if the tax relates to the underlying instrument, rather than the {{{{{1}}}|Payer}}’s residence or tax status, the {{{{{1}}}|Payer}} does not have to gross up.
• if the tax relates to the {{{{{1}}}|Payer}}’s residence or tax status, then the Payer does have to gross up unless the {{{{{1}}}|Payee}} should have provided information to the {{{{{1}}}|Payer}} which would have entitled the {{{{{1}}}|Payer}} to avoid the tax.
• if you’ve agreed the {{{{{1}}}|FATCA Amendment}}, the {{{{{1}}}|Payer}} doesn’t have to gross up any {{{{{1}}}|FATCA Withholding Tax}}es.

The combination of the {{{{{1}}}|Payer Tax Representations}} and the {{{{{1}}}|Gross-Up}} clause of the ISDA Master Agreement has the following effect:

• Section {{{{{1}}}|3(e)}}: I promise you that I do not have to withhold on my payments to you (as long as all your {{{{{1}}}|Payee Tax Representations}} are correct and you have, under Section {{{{{1}}}|4(a)}}, given me everything I need to pay free of withholding);
• Section {{{{{1}}}|2(d)}}: I will not withhold on any payments to you. Unless I am required to by law. Which I kind of told you I wasn’t... If I have to withhold, I'll pay the tax the authorities and give you the receipt. If I only had to withhold because of my connection to the taxing jurisdiction (that is, if the withholding is an {{{{{1}}}|Indemnifiable Tax}}), I’ll gross you up. (You should look at the drafting of {{{{{1}}}|Indemnifiable Tax}}, by the way. It's quite a marvel). ...
• {{{{{1}}}|Gross-Up}}: Unless the tax could have been avoided if the {{{{{1}}}|Payee}} had taken made all its {{{{{1}}}|3(f)}} representations, delivered all its {{{{{1}}}|4(a)}} material, or had its {{{{{1}}}|3(f)}} representations been, like, true).
• {{{{{1}}}|Stamp Tax}} is a whole other thing.
• As is FATCA, which (as long as you’ve made your {{{{{1}}}|FATCA Amendment}} or signed up to a {{{{{1}}}|FATCA Protocol}}, provides that {{{{{1}}}|FATCA Withholding Tax}}es are excluded from the Section {{{{{1}}}|3(e)}} {{{{{1}}}|Payer Tax Representations}}, and also from the definition of {{{{{1}}}|Indemnifiable Tax}}. Meaning one doesn't have to rep, or gross up, FATCA payments.