Offices; Multibranch Parties - ISDA Provision

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2002 ISDA Master Agreement
A Jolly Contrarian owner’s manual

Section 10 in a Nutshell
Use at your own risk, campers!

10. Offices; Multibranch Parties

10(a) If this Section applies, whenever a party enters a Transaction through a branch Office, it represents that recourse against it will be the same as if it had entered through its head office (subject to any Waiting Period for an Illegality or a Force Majeure Event).
10(b) If a party is a Multibranch Party it may, subject to clause 10(c) below, enter into and book Transactions and make and receive payments through Office listed for that party in the Schedule.
10(c) The Office through which a party enters into a Transaction will be specified in the Confirmation or, if not specified, that party’s head office. The specified Office will also be the Office in which that party books and makes and receives payments and deliveries under Transaction. Except to make a Transfer to Avoid Termination Event neither party may change its specified Office for a Transaction without the the other’s prior written consent.

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Section 10 in full

10. Offices; Multibranch Parties

10(a) If Section 10(a) is specified in the Schedule as applying, each party that enters into a Transaction through an Office other than its head or home office represents to and agrees with the other party that, notwithstanding the place of booking or its jurisdiction of incorporation or organisation, its obligations are the same in terms of recourse against it as if it had entered into the Transaction through its head or home office, except that a party will not have recourse to the head or home office of the other party in respect of any payment or delivery deferred pursuant to Section 5(d) for so long as the payment or delivery is so deferred. This representation and agreement will be deemed to be repeated by each party on each date on which the parties enter into a Transaction.
10(b) If a party is specified as a Multibranch Party in the Schedule, such party may, subject to clause (c) below, enter into a Transaction through, book a Transaction in and make and receive payments and deliveries with respect to a Transaction through any Office listed in respect of that party in the Schedule (but not any other Office unless otherwise agreed by the parties in writing).
10(c) The Office through which a party enters into a Transaction will be the Office specified for that party in the relevant Confirmation or as otherwise agreed by the parties in writing, and, if an Office for that party is not specified in the Confirmation or otherwise agreed by the parties in writing, its head or home office. Unless the parties otherwise agree in writing, the Office through which a party enters into a Transaction will also be the Office in which it books the Transaction and the Office through which it makes and receives payments and deliveries with respect to the Transaction. Subject to Section 6(b)(ii), neither party may change the Office in which it books the Transaction or the Office through which it makes and receives payments or deliveries with respect to a Transaction without the prior written consent of the other party.

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Related agreements and comparisons

Related Agreements
Click here for the text of Section 10 in the 1992 ISDA
Comparisons
Click to compare this section in the 1992 ISDA and 2002 ISDA.

Resources and navigation

Resources Wikitext | Nutshell wikitext | 1992 ISDA wikitext | 2002 vs 1992 Showdown | 2006 ISDA Definitions | 2008 ISDA | JC’s ISDA code project
Navigation Preamble | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | 13 | 14
Events of Default: 5(a)(i) Failure to Pay or Deliver5(a)(ii) Breach of Agreement5(a)(iii) Credit Support Default5(a)(iv) Misrepresentation5(a)(v) Default Under Specified Transaction5(a)(vi) Cross Default5(a)(vii) Bankruptcy5(a)(viii) Merger without Assumption
Termination Events: 5(b)(i) Illegality5(b)(ii) Force Majeure Event5(b)(iii) Tax Event5(b)(iv) Tax Event Upon Merger5(b)(v) Credit Event Upon Merger5(b)(vi) Additional Termination Event

Index — Click ᐅ to expand:

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Content and comparisons

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Summary

Section 10 of the ISDA Master Agreement allows parties to specify whether they are Multibranch Parties. Electing “Multibranch Party” status allows you to transact out of the named branches of the same legal entity.
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General discussion

Details fans will immediately note that, from the point of view of legal and corporate philosophy — surely a subject dear to every attorney’s heart — the differing branches of a legal entity have no distinct legal personality any more than does a person’s arm or leg have different personality from her head. So being a “multibranch” party seems immaterial.

Taxation

Those details fans will have overlooked the strange, parallel universe of taxation. Here physical presence and not legal personality is what matters. Specifying that your counterparty may trade from its offices in, for example, Prague, Kabul or The Sudan[1] may impact the tax payable on payments under the relevant transactions under the ISDA. Where both parties are multibranch parties and have numerous overseas branches, a complex multilateral analysis of all the different permutations is assured.

It is basically a withholding tax gross-up risk. If withholding tax arises on a payment made through your office in Tel Aviv, and the counterparty hasn’t provided evidence of an exemption from withholding, it may argue that we have to gross-up the payment because we did not disclose that we would make payments from Tel Aviv and had we, they would have proved their exemption. So failing to disclose that ILS payments will originate from Israel, may be a material misrepresentation by omission.

Therefore, a double-jeopardy: counterparties may refuse to make the necessary Payee Tax Representation because they didn’t think it would be needed. So, no Payee Tax Representation + no Multibranch ISDA election = potential withholding tax gross up or a possible Misrepresentation Event of Default.

Now you could disclose the branch in a Confirmation (but good luck remembering to do that, and you may not have one in an electronically booked Transaction), or you could inject more detailed representations in Part 5 — but none is as simple as putting “Tel Aviv” in the Multibranch election.

Must you complete onboarding in each jurisdiction though?

Yes — and no. A case where the operational reality trumps the legal theory. If you have a Multibranch ISDA that lists, say, Prague, The Sudan[2] and Wellington, do you need to onboard the client in each of those jurisdictions? Students of onboarding will recognise this as a collossal disincentive to adding branches willy-nilly, but that legal implication will typically depend on an operational setup in the broker’s systems without which it won’t be possible to book a trade in that jurisdiction whatever the legal docs say. So look upon the legal contract as permissive; the thing that will drive your KYC obligations and trigger the onboarding onslaught will be opening an account in your systems at a later date.

Netting

While, by dint of the legal personality, it wouldn’t make any difference under English or New York law, and really shouldn’t anywhere else, there are those jurisdictions which are not so theoretically pure in their conceptualisation of the corporate form. Your counterparty may have the misfortune to be incorporated in such a place.

If so, the validity of close-out netting against that entity may indeed depend on the branch from which it transacts - and indeed there is a possibility that the governing law of the jurisdiction of the branch may endeavour to intervene (particularly relevant if it has assets). Another reason, perhaps, to disapply the “multibranch party” for a counterparty incorporated in such a jurisdiction. The way to check this is at the netting opinion review sheet contains the following question:

Does the opinion confirm that close-out netting under the agreement is enforceable notwithstanding the inclusion of branches in non-netting jurisdictions? Yes/No

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See also

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References

  1. I know, I know. It was a joke.
  2. See footnote above.