ISDA Master Agreement

ISDA Anatomy™ incorporating our exclusive ISDA in a Nutshell™ 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 Deliver • 5(a)(ii) Breach of Agreement • 5(a)(iii) Credit Support Default • 5(a)(iv) Misrepresentation • 5(a)(v) Default Under Specified Transaction • 5(a)(vi) Cross Default • 5(a)(vii) Bankruptcy • 5(a)(viii) Merger without Assumption • Termination Events: 5(b)(i) Illegality • 5(b)(ii) Force Majeure Event • 5(b)(iii) Tax Event • 5(b)(iv) Tax Event Upon Merger • 5(b)(v) Credit Event Upon Merger • 5(b)(vi) Additional Termination Event Index: Click ᐅ to expand: 2002 ISDA - Premium 1992 ISDA Essays Comments? Questions? Suggestions? Requests? Insults? We’d love to 📧 hear from you. Sign up for our newsletter. Premium version of this page

Foundational concepts

• What is a swap, how does it work? – founding concepts:
• Underliers
• “synthetic exposure”
• Mark-to-market value
• Replacement cost
• Hedging

The ISDA Master Agreement

The ISDA Master Agreement is the basic framework which applies to anyone who touches down on planet ISDA. There are three existing versions:

• 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.

All three versions have a tri-partite form: Pre-printed Master, Schedule and — well, this is controversial: for is it, or is it not, part of the ISDA Master Agreement? — Credit Support Annex.

Big drafting issues

• Valuation and Calculation: of transactions – differing standards between asset classes
• Credit:
  • Events of Default and Termination Events, the differences between them
  • Cross Default and inadvertent solvency risks
  • Additional Termination Events that will be specific to counterparties
  • Credit Support Providers,
  • Specified Entities
• Close out:
  • How close out works
  • Netting and set off

Netting

• The importance of close-out netting
• Netting opinions
• Counterparty types
• Automatic Early Termination
• Collateral
• Multibranch parties

Collateral

How the CSA works

• Title transfer versus pledge
• “Equivalent” credit support
• Independent Amounts
• Changes wrought by regulations for variation margin
• Valuation of collateral and exposure values

Tax representations

• Hire Act,
• FATCA,
• Payer Representations and Payee Representations

Process issues

• Capacity and authority
• Onboarding and AML
• Static data and netting flags

Who are the stakeholders?

• • Credit
  • Treasury
  • Legal
  • Trading
  • Sales

See also

• ISDA Anatomy
• 1992 ISDA
• 2002 ISDA