Template:Single agreement capsule

The “single agreement” concept

Here several pieces of magic come together to create the capital foundation of the modern master trading agreement. The challenge, originally solved by the First Men, was to create an architecture that allowed discrete, unitary, complete {{ {{{1}}}|Transaction}}s, such that creating a new one or terminating an old one didn’t upset the economic or legal integrity of other {{ {{{1}}}|Transaction}}s that were currently on foot, while at the same time creating an umbrella framework so that, should something regrettable happen to either party, all {{ {{{1}}}|Transaction}}s can be quickly rounded up, evaluated, stopped and then collapsed down — “netted” — to a single amount, payable by one party to the other.

This involved some canny financial engineering. The general rules of set-off require not just a mutuality of parties to the off-setting debts, but also amounts falling due on the same day and in the same currency — neither of which was necessarily true of the independent {{ {{{1}}}|Transaction}}s executed under an multi-currency, cross-border ISDA Master Agreement.

The answer was this concept of the “{{ {{{1}}}|Single Agreement}}”: the over-arching agreement that, however independent and self-contained {{ {{{1}}}|Transaction}}s are for any other purpose, when it comes to their early termination they transmogrify themselves into the single host agreement, and are reduced to calculation inputs to the final amount which one party must pay the other. Thereby the process is not one of “set-off” at all, but of calculating a single net amount, payment of which would sort out all matters outstanding under the relationship.