Template:M intro isda Party A and Party B: Difference between revisions

Jump to navigation Jump to search

Template:M intro isda Party A and Party B (view source)

Revision as of 08:44, 2 June 2023

100 bytes added ,  2 June 2023
no edit summary
No edit summary
No edit summary
Line 8: Line 8:
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''”.  
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]]'').  
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]]'').  


Thus, the neutral labels “Party A” and “Party B”.
Now the {{isdama}} ''itself'' never uses the terms “Party A” or “Party B”.  Being genuinely bilateral, it never has to. The labels are arbitrary assignations that apply at trade level. They only appear in the {{isdaprov|Schedule}} and in {{isdaprov|Confirmation}}s, to be clear who is who on a given trade: who pays the fixed rate and who the floating; which thresholds, maxima, minima, covenants, details, agents and terms apply to which counterparty. The {{isdama}} assumes you already know who is who, having agreed it in the {{isdaprov|Schedule}}.


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.  
So we agree: for this relationship we will call you Party B, and me Party A.  


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.  
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.  
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''.
[[Negotiator|Negotiators]], too, are prone to forget. This is just the sort of thing a [[four-eyes check]] will miss: when dropping in your {{isdaprov|PPF Event}} template rider for that one time in a thousand when you are not Party A, it is easy to forget to invert the labels. If you do forget, no-one 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.
But 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. We should not let ourselves forget: beyond the comparatively rare interdealer universe, there will be a “dealer” and  there will be
a “customer”. Their roles are different, and it behoves us not to forget. In recent years — ironically, just as the dealer vs customer dynamic has become more pronounced — the regulatory approach has kidded itself to the contrary.
Retrieved from "https://jollycontrarian.com/index.php?title=Special:MobileDiff/75317"

Navigation menu