Template:M intro isda Party A and Party B

Unlike other loan and financing documents, the ISDA Master Agreement eschews understandable terms for its participants — ones that help you orient who is who: you know, like “Borrower” and “Lender”; “Bank” and “Client”; or “Buyer” and “Seller” — for the decidedly more gnomic “Party A” and “Party B”.

This derives from a working theory that gripped the First Men as they forged the deep magic that become the First ISDA: “a swap contract,” they intoned, “is an equal opportunity sort of an affair; Biblically righteous in that one is neither a lender nor a borrower under it, but a counterparty”. A counterparty is cunisian: neither one thing nor the other, but infused with glorious possibilities. Either fellow may owe or be owed; each has, in theory, the same likelihood as the other of being in or out-of-the-money. This is a bilateral relationship. Thus the ISDA anoints participants the labels “Party A” and “Party B”.

But does it? The first thing to notice is that, actually, the ISDA Master Agreement itself does not use the terms “Party A” or “Party B”. They only appear in the Schedule, and are only there to be clear which customised covenants, details, agents and terms apply to which of the counterparties. The legal terms of a swap may depend on who is paying what, and are bilateral and interchangeable — Party A may be Floating Rate Payer for one Transaction and Fixed Rate Payer for the next — but their credit terms are personal to the counterparties, and not a function of who is long and who short.

The ISDA proper, being genuinely bilateral, never has to speak of Party A or Party B, because they are arbitrary assignations for clarity. General terms in the ISDA Master Agreement apply equally to both of them.