Template:Isda 9(e) summ

Section {{{{{1}}}|9(e)(i)}} Counterparts

There is an impassioned essay about the idiocy of counterparts clauses elsewhere.

Section {{{{{1}}}|9(e)(ii)}} {{{{{1}}}|Confirmation}}s

Trade versus confirmation: celebrity death-match

If a trader agrees one thing, and the confirmation the parties subsequently sign says another, which gives? A 15 second dealing-floor exchange on a crackly taped line, or the carefully-wrought ten page, counterpart-executed legal epistle that follows it?

TL;DR: The original oral trade prevails.

The confirmation is evidence of the transaction, but it does not override the original transaction terms, if they are different.

That is, the binding trade may be a phone call or a bloomberg chat. (This sits kind of uneasily with that Entire Agreement clause, but still.)

If there is a dispute about the terms of your confirmation, you are going to have to pull the tapes.

There are some very good reasons for this. Firstly, the original trade was done by the trader with the trading mandate. The confirmation will be punted out by some dude in ops who might not be able to read the trader’s handwriting. Ops can and will get things wrong. That is correctable on the record. The trader doesn’t “get things wrong”. If she does, you’re into mistake territory. The law on contractual mistakes is beloved by students of the law and misunderstood by everyone else. But, generally, if the trader erroneously executes a trade, and the trader’s counterparty understands it correctly, the trader, and the firm she works for, will be bound by the error. That’s not a contractual mistake. It’s just a bad trade.

By contrast, a settlements and reconciliations dude who sends out a confirm which carelessly misinterprets the trade log is not making a contractual mistake: he is incorrectly recording the contract. That wasn’t the trade (good or bad) that the trader did.

Similarly, the reconciliations dude who sends out a confirm which corrects an error made by the trader has no mandate to make that change. The error is the trader’s. The trader should live with it, and throw herself at the mercy of the jurisprudence of contractual mistakes if need be: it is not for said reconciliations dude to pull her out of a hole.

Dare we mention ... email?

Note also the addition of e-mail as a means of communication to the 2002 ISDA (email not really having been a “thing” in 1992). This caused all kinds of fear and loathing among the judiciary, when asked about it, as can be seen in the frightful case of Greenclose v National Westminster Bank plc.Oh dear, oh dear, oh dear.

Timely confirmation regulations and deemed consent

Both EMIR and Dodd Frank have timely confirmation requirements obliging parties to have confirmed their scratchy tape recordings within a short period (around 3 days). This fell out of a huge backlog in confirming structured credit derivatives trades following the Lehman collapse.

Roger Moore indahouse

Lastly, a rare opportunity to praise those maestros of legal word-wrangelry, ISDA’s crack drafting squad™. In Section {{{{{1}}}|9(e)(ii)}}, they contemplate that one might agree a {{{{{1}}}|Transaction}} “orally or otherwise”. This is a smidgen wider than the usual legal eagle formulation of orally or in writing. It shows that while the swaps whizzes were conservative about how to close out a {{{{{1}}}|Transaction}}, when putting one on you are constrained only by the bounds of your imagination and the limits of interpersonal ambiguity: not just written words, nor even oral ones, but the whole panoply of possible human communications: semaphore, naval flags, Morse code, waggled eyebrows, embarrassed smiles and any other kinds of physical gesture.