Relationship Between Parties - ISDA Provision

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2002 ISDA Master Agreement

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Relationship Between Parties in a Nutshell

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Relationship Between Parties in all its glory

Relationship Between Parties. Each party will be deemed to represent to the other party on the date on which it enters into a Transaction that (absent a written agreement between the parties that expressly imposes affirmative obligations to the contrary for that Transaction):
(1) Non-Reliance. It is acting for its own account, and it has made its own independent decisions to enter into that Transaction and as to whether that Transaction is appropriate or proper for it based upon its own judgment and upon advice from such advisers as it has deemed necessary. It is not relying on any communication (written or oral) of the other party as investment advice or as a recommendation to enter into that Transaction, it being understood that information and explanations related to the terms and conditions of a Transaction will not be considered investment advice or a recommendation to enter into that Transaction. No communication (written or oral) received from the other party will be deemed to be an assurance or guarantee as to the expected results of that Transaction.
(2) Assessment and Understanding. It is capable of assessing the merits of and understanding (on its own behalf or through independent professional advice), and understands and accepts, the terms, conditions and risks of that Transaction. It is also capable of assuming, and assumes, the risks of that Transaction.
(3) Status of Parties. The other party is not acting as a fiduciary for or an adviser to it in respect of that Transaction.

Related agreements and comparisons

Click here for the text of Section Relationship Between Parties in the 1992 ISDA
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Resources and Navigation

This provision in the 1992

Resources Wikitext | Nutshell wikitext | 1992 ISDA wikitext | 2002 vs 1992 Showdown | 2006 ISDA Definitions | 2008 ISDA | JC’s ISDA code project
Navigation Preamble | 1(a) (b) (c) | 2(a) (b) (c) (d) | 3(a) (b) (c) (d) (e) (f) (g) | 4(a) (b) (c) (d) (e) | 55(a) 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 5(b) 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 (c) (d) (e) | 6(a) (b) (c) (d) (e) (f) | 7 | 8(a) (b) (c) (d) | 9(a) (b) (c) (d) (e) (f) (g) (h) | 10 | 11 | 12(a) (b) | 13(a) (b) (c) (d) | 14 |

Index: Click to expand:



The triple cocktail of Additional Representations set out in the pre-printed version of the Schedule. All tedious stuff, about which no negotiator cares a fig or gives a backwards glance. Do not futz with it, however tempting it may seem.




Also, for good order, in not so many words and for no compelling reason, reproduced in Article 13.1 of the 2002 ISDA Equity Derivatives Definitions.

You might ask why this representation wasn’t included somehow in Section 3 of the ISDA Master Agreement, along with all the other Representations. Perhaps it was an afterthought — though it is hard to udnerstand if so why it made it to the pre-printed schedule.

In any case, the contents of this representation are throroughly uncontroversial: it is designed purely to head off mendacious, buyer’s remorse-inflected regrets at having participated in a transaction in which one has lost money.

The deal is that swap dealers, sitting as they do on the public side of the great wall of information barriers that runs down the middle of an investment bank, owe no fiuciary obligations[1] and give no advice and operate at arm’s length — so this is really just a fancy way of saying BUYER BEWARE. If you want advice, go see an investment adviser.

Assessment and Understanding

Having assured the assembled that you have understood the Transaction and taken such advice as you need to determine that it is suitable, this representation allays the lingering existential doubt your counterparty might have that, notwithstanding your status (represented/determined elsewhere) as a qualified institutional buyer, professional client, institutional investor or whatever other designation of competence a regulator might habitually expect, you might still be so stupid as to not understand that you don’t understand the Transaction, or the professional advice you have obtained about that Transaction. One gets comfort by a follow on rep that one is capable of understanding the merits and risks of the transaction. Neat, tidy, and job done...

... except there is a whopping great elephant there, standing on a stack of turtles. For how are we supposed to know whether you are capable of determiningwhether you are capable of understanding the merits of the transaction?

Fortunately the ’squad — and knowing them as we do, we feel they must have been sorely tempted to keep going at least for a little bit, just to see where it took them — eschewed the opportunity to jump down that rabbithole, and executed a deft, and quite uncharacteristic, kick to touch.

Status of Parties

Just to be clear, if the Non-Reliance and Assessment and Understanding limbs of the Relationship Between Parties don’t get you where you need to be, we are not a fiduciary, okay?

Behold: the site of ISDA’s crack drafting squad™ and its nail-gun, peppering a coffin that, we suspect, probably didn’t have a body in it in the first place.

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  • The JC’s famous Nutshell summary of this clause

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See also


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  1. This rule is progressively honoured in the regulatory breach, by the way, with things like best execution, but it remains the operating theory.