Calculation Agent

The ISDA Schedule does contain an election for Calculation Agent but, curiously, the term isn’t otherwised defined or used in either version of the ISDA Master Agreement. The parties may spend a great deal of fruitless energy in haggling, at Part 4(e) of the Schedule, about who should be the Calculation Agent, and what rights the other poor sap should have to challenge its determinations.

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I hope it isn’t too disappointing to hear if your counterparty is a broker-dealer and you are not, your counterparty will insist on being the calculation agent.

How strongly each feels about this will depend on the sort of products they’re expecting to trade: FX and simple equity derivatives have a deep, liquid, observable markets, and as there’s little scope for picking a fight, a dealer Calculation Agent may not be bothered about ceding rights to dispute its calculations. Expect a different reaction should you seek to second-guess your dealer’s marks on exotic credit derivatives, on the other hand. These rely enormously on the dealer’s internal models, pricing curves and other kinds of idiosyncratic financial alchemy that are almost certainly unique to the dealer in question.

Co-calculation agent

There’s an old saying:

A co-calculation agent is no calculation agent.

However superficially neat this might seem to the age-old valuation dilemma of who should price the trade, it suffers in one important respect: unless the parties agree on the determination, the parties — er — won't agree on the determination. And then what do you do?

Other ISDA booklets

The term is defined separately in each definition booklet:

• In the 2002 ISDA Equity Derivatives Definitions at Section 1.40;
• In the 2006 ISDA Fund Derivatives Definitions (in virtually identical terms to the 2002 ISDA Equity Derivatives Definitions) at Section 1.27;
• In the 2005 ISDA Commodity Definitions at greater length in Section 4.5;