Template:Isda 1(b) summ

It wouldn’t be ISDA if there weren’t a hierarchy clause; like all hierarchy clauses, this one states what ought to be obvious: the pre-printed ISDA Master Agreement itself sits at the bottom of the hierarchy, is modified by the {{{{{1}}}|Schedule}}; once that is negotiated and stuck into the netting database, the {{{{{1}}}|Schedule}} sits there, ungainly, unloved and unregarded until the Great King of Terror comes down from the sky and may be (but generally isn’t) modified as needs be for each {{{{{1}}}|Transaction}} by the {{ {{{1}}}|Confirmation}}.

One quick point that only needs saying when busy-bodies from internal audit come looking for worms and earwigs under rocks: you never, never, never inline amend the ISDA Master Agreement. If you want to amend its terms — of course you do, you are a legal eagle and your client is special — you do that remotely in the schedule.

Why labour this obvious point? Because JC has had to explain to a disbelieving external compliance audit firm, retained to ensure quality control over a portfolio of tens of thousands of master trading agreements, that none of them had been inline amended, and there was no need for a core-sample test, or a gap analysis, or a nine-month all-points operational risk deep dive to be sure that this was the case, and it was an argument that ran for three weeks and which the JC almost lost.

The ISDA Master Agreement is shot through with unimaginative design, unnecessary verbiage and conceptual convolution, but this is one design principle the ’squad got absolutely right: offboarding amendments to a schedule does several smart things: it creates a neutral standard for all participants; it disincentivises fripperous amendments — it is a rare pedant who will insists on saying “Section 2(a)(i) is amended by adding “, as the case may me” before the full stop on the third line. or “for the avoidance of doubt” into a makes it very clear at a glance what has changed from the standard.

In point of fact the {{ {{{1}}}|Confirmation}}s don’t tend to modify anything in the Master or {{ {{{1}}}|Schedule}}, but rather builds on them, but if there is inconsistency — and with a document as pedantic and overwrought as the ISDA Master Agreement you never know — then the most specific, recently edited document will be the one that prevails.

All of this follows from general principles of contractual interpretation and common sense communication, of course.