Long form confirmation

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ISDA Anatomy

incorporating our exclusive ISDA in a NutshellTM

Resources Wikitext | Nutshell wikitext | 1992 ISDA wikitext | 2002 vs 1992 Showdown | 2006 ISDA Definitions | 2008 ISDA
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

A long form confirmation, or “LFC”, generally refers to the documentation for a financial transaction between two parties which have not (yet) formally signed a master agreement for that type of transaction. Instead they document the trade on a “long form” which deems a basic version of the relevant master agreement be in existence between the parties for the purposes of the transaction.

This used to be totally cool but for many years the sober and upright legal fraternity have frowned madly on this format, and it is now shunned and marginalised. It even features in our FWMD Top Trumps catalog.

Example: ISDA LFC

For example, an ISDA LFC incorporates by reference the ISDA Master Agreement, without a Schedule, pulling in the provisions in the ISDA Master Agreement concerning termination and close-out, representations, so on. So - you have an ISDA without all the bother, right?

In hindsight, a revolutionary idea, whose time will once again come, we think. But for the time being the cottage industrial complex of the ISDA negotiation world is managing to hold off the baying hounds of common sense, and we are going through the pantomime of separately negotiating what ought to be an utterly standard market contract.

Drawbacks

While LFCs “do the job”, they're not ideal for a number of reasons:

  • They incorporate the basic ISDA protections whcih are in the preprinted ISDA Master Agreement. However, most counterparties significantly enhance these protections with additional provisions and elections in the Schedule and with a 1995 English Law CSA. The standard form LFC does not capture any such enhancements, and does not have a 1995 English Law CSA.
  • The standard LFC deems eachy separate transaction to be executed under s “stand-alone” ISDA Master Agreement. Without additional amendment, there would not be cross-transactional close-out netting between two LFCs exectuted with the same party (though this language may be overcome provided there is some "aggregation language" in every LFC, and every LFC has the same designated Termination Currency).

See also