Preamble - ISDA Provision
2002 ISDA Master Agreement
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Like all good stories, the ISDA starts with a Preamble. Everyone, once, stares at that gnomic title and thinks, “okay, what the hell is this all about?”
Well, step this way, young padawan. Step into this rabbithole. A fellow called Gerald asked a callow young contrarian to look at an aye-ess-dee-aye once, in about 1995, and — well, here we all are, folks. Honestly, if I had known how much time I was going to spend with the damn thing I would have paid a lot more attention in the first place.
A word on industry associations
ISDA, who publishes the ISDA, is the International Swaps and Derivatives Association. Those with a keen eye will note that, some time between 1992 and 2002, it rebranded from the “International Swap Dealers Associations, Inc.” — interesting plural, that, but in any case an outwardly sell-side outfit — to the more neutral-sounding “International Swaps and Derivatives Association, Inc.”: singular, at the same time more unitary and more inclusive sounding, but still in spirit the same old ISDA, stake-held predominantly by the largest broker-dealers on the face of the Earth. It may have aspirations to conquer the world but for now ISDA remains a “dealer-community” association.
These days the “buy-side lobby” is a lot bigger, more organised and better represented than it used to be, with AIMA (the Alternative Investment Management Association), EFAMA (the European Fund and Asset Management Association, the MFA (the Managed Funds Association), (not to be confused, by the way, with the Fund Management Association of Kenya) and the IA (the Investment Association), representing their interests.
The preamble is just the loosener before things get properly going, and there is not a lot to see. It has not really changed a lot between the 1992 ISDA and the 2002 ISDA (nor indeed, from the 1987 ISDA, except that the Single Agreement clause got promoted from a casual remark during the warm-up, in the 1987 ISDA, to the first searching delivery of the first over.
The legal documentation for an ISDA swap transaction comes in three main parts, but — of course — there are complications for the legal eagles to get their iatrogenic talons into. But for now, let’s start at the beginning.
- the state-of-the-art 2002 ISDA;
- the still-popular-with-traditionalists-and-Americans 1992 ISDA, and
- the all-but-retired-but-don’t-forget-there-are-still-soldiers-in-the-Burmese-jungle 1987 ISDA
- the interesting-only-for-its-place-in-the-fossil-record-and-witty-acrostic 1985 ISDA Code; and
- there isn’t a 2008 ISDA. That’s a little running JC in-joke.
- The JC’s famous Nutshell™ summary of this clause
- ISDA architecture: Interaction between:
- Pre-printed master
- ISDA Schedule
- Credit support arrangement
- The uncharacteristic looseness in the definition of “Transaction”
- Is the Confirmation the binding legal agreement or is it the oral conversation between the traders?
- Hi Gerald!
- Cricket metaphor. To our American readers, we would say sorry, except that we are not. There will be cricket analogies throughout.
- There is no such thing as a 2008 ISDA. That was a joke on our part.
- Seriously: proceed with caution with one of these. 1987 ISDAs don’t have a lot of safety features a modern derivatives counterparty relies on, so only for real specialists and weirdos. Think of it like flying a spitfire rather than a 737 Max. Um, okay, bad metaphor.
- Talking to yourself might not be the first sign of madness, but having in-jokes with yourself might be.