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(Created page with "Unlike other loan and financing documents, the {{isdama}} eschews understandable terms for its participants — ones that help you orient who is who: you know, like “Borrower” and “Lender”; “Bank” and “Client”; or “Buyer” and “Seller” — for the decidedly more gnomic “{{isdaprov|Party A}}” and “{{isdaprov|Party B}}”. This derives from a working theory that gripped the First Men as they forged...")
 
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[[Party A and Party B - ISDA Provision|Unlike]] other loan and financing documents, the {{isdama}} eschews understandable terms for its participants — ones that help you orient who is who: you know, like “Borrower” and “Lender”; “Bank” and “Client”; or “Buyer” and “Seller” — for the decidedly more gnomic “{{isdaprov|Party A}}” and “{{isdaprov|Party B}}”.
[[Party A and Party B - ISDA Provision|In this episode]] of the JC’s series of unfeasibly deep explorations of superficially odd things in the ISDA metaverse, we look at the curious counterparty designators in the master agreement “Party A” and “Party B”, and that curious descriptor itself, “counterparty”.  


This derives from a working theory that gripped the [[First Men]] as they forged the [[deep magic]] that become the [[First ISDA]]: “a swap contract,” they intoned, “is an equal opportunity sort of an affair; Biblically righteous in that one is neither a lender nor a borrower under it, but a ''counterparty''”. A counterparty is [[cunisian]]: neither one thing nor the other, but infused with glorious ''possibilities''. Either fellow may owe or be owed; each has, in theory, the same likelihood as the other of being ''[[in-the-money|in]]'' or ''[[out-of-the-money]]''. This is a bilateral relationship. Thus the ISDA anoints participants the labels “Party A” and “Party B”.
These set the ISDA apart; give it a sort of otherwordly aloofness.


But ''does'' it? The first thing to notice is that, actually, the {{isdama}} ''itself'' does ''not'' use the terms “Party A” or “Party B”. They only appear in the {{isdaprov|Schedule}}, and are only there to be clear which customised covenants, details, agents and terms apply to which of the counterparties. The legal terms of a swap may depend on who is paying what, and are bilateral and interchangeable — Party A may be Floating Rate Payer for one Transaction and Fixed Rate Payer for the next — but their credit terms are personal to the counterparties, and not a function of who is long and who short.  
Other banking and broking arrangements use labels which  terms help you orient who is who:  “Borrower” and “Lender”; “Bank” and “Client”; “Broker” and “Customer”; or “Buyer” and “Seller”. From the outside ISDA’s framers opted for the decidedly more gnomic “{{isdaprov|Party A}}” and “{{isdaprov|Party B}}”.


The ISDA proper, being genuinely bilateral, never has to speak of {{isdaprov|Party A}} or {{isdaprov|Party B}}, because they are arbitrary assignations for clarity. General terms in the {{isdama}} apply equally to both of them.
===Bilaterality===
This derives from the belief in even-handedness that gripped the [[First Men]] who forged the [[deep magic]] from which the [[First Swap]] was born: “a swap contract,” they intoned, “is an exchange among peers. It is an equal opportunity sort of thing; Biblically righteous in that under its awnings one be neither lender nor borrower, but an honest rival for the favour of the Lady Fortune. A ''counterparty''”.
 
Swaps are different from loans and brokerage arrangements. They start off “at market”: all is square. Either party may be long, or short, fixed or floating. At the moment the trade is struck, the world infused with glorious ''possibilities''. One’s fortunes may rise or fall relative to the other fellow’s and, as a result, one may owe (''[[out-of-the-money]]'') or be owed (''[[in-the-money|in]]'').
 
Thus, the neutral labels “Party A” and “Party B”.
 
Now the {{isdama}} ''itself'' never uses the terms “Party A” or “Party B”.  The ISDA proper, being genuinely bilateral, never has to, because they are an arbitrary assignation that only applies at trade level. The {{isdama}} contains general terms only, that apply equally to both parties.
 
The labels only appear in the {{isdaprov|Schedule}} and in confirmations, and then only to be clear who is who on a give trade: positions are equal, but different: you need to know who pays the fixed rate and who the floating; which thresholds, maxima, minima, covenants, details, agents and terms apply to which counterparty. So we agree: for this relationship we will call you Party B, and I will be Party A. These colourless and generic terms hark from a time where, we presume, the idea of “find and replace all” in an electronic seemed some kind of devilish black magic.
 
But generic labels still lead to practical difficulties. A dealer with ten thousand counterparties in its portfolio wants to be Party A every time. If, on occasion, it cannot be, this can lead to anxious moments should the legal eagles misread the confirms for those rare occasions where it is not.
 
[[Negotiator|Negotiators]], too, are prone to forget and this is just the sort of thing a [[four-eyes check]] will miss: when dropping in your template {{isdaprov|PPF Event}} rider, it is easy to forget to invert Party A and Party B labels for that one time in a hundred when you should. If you do, you will never know — ''unless and until it is way too late''.
 
But for the most part there is a better objection: for all our automatic protestations to the contrary, the ISDA ''is not'' a bilateral contract, and it is a financing contract. Aside from that highly rare interdealer universe, “Dealer” and “Customer” might have been better labels from the off.
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