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The ISDA Schedule has space to specify who the {{isdaprov|Calculation Agent}} should be but, curiously, gives scant hints as to what such an agent should do: the term isn’t otherwised defined — or even used — in either version of the {{isdama}}. The role comes in to its own under the {{csa}} and the various definitions booklets ISDA has published. The Calculation agent can differ from transaction to transaction, and while guileless negotiation teams may therefore spend a great deal of energy haggling fruitlessly about who should be the {{isdaprov|Calculation Agent}}, and what rights the other poor sap should have to challenge its determinations, in practice it will be the [[dealer]]. | The ISDA Schedule has space to specify who the {{isdaprov|Calculation Agent}} should be but, curiously, gives scant hints as to what such an agent should do: the term isn’t otherwised defined — or even used — in either version of the {{isdama}}. The role comes in to its own under the {{csa}} and the various definitions booklets ISDA has published. The Calculation agent can differ from transaction to transaction, and while guileless negotiation teams may therefore spend a great deal of energy haggling fruitlessly about who should be the {{isdaprov|Calculation Agent}}, and what rights the other poor sap should have to challenge its determinations, in practice it will be the [[dealer]]. | ||
As well as in the {{isdama}}, the term is defined separately in each definition booklet, giving everyone a nice opportunity for some [[clarifying hierarchy]] action: | As well as in the {{isdama}}, the term is defined separately in each definition booklet, giving everyone a nice opportunity for some [[clarifying hierarchy]] action: | ||
*In the {{eqdefs}} at Section {{eqderivprov|1.40}}; | *In the {{eqdefs}} at Section {{eqderivprov|1.40}}; | ||
*In the {{funddefs}} (in virtually identical terms to the {{eqdefs}}) at Section {{funddefprov|1.27}}; | *In the {{funddefs}} (in virtually identical terms to the {{eqdefs}}) at Section {{funddefprov|1.27}}; | ||
*In the {{commoddefs}} at greater length in Section {{commoddefprov|4.5}}; | *In the {{commoddefs}} at greater length in Section {{commoddefprov|4.5}}; | ||
===[[Co-calculation agent]]=== | |||
{{cocalculationagent}} | |||
===Disputing a Calculation Agent’s determinations=== | |||
One of the great old saws of negotiation in any capital markets transaction is ''what to do if you don’t like the number the Calculation Agent comes up with''. This springs from the ancient, primal fear that flutters in the breast of every [[buy-side legal eagle]] which is best articulated thus: All swap dealers are innately mendacious. They care for nothing but their own pnl. They will thus not pause to breathe before ripping off their clients’ faces should the merest opportunity to do so arise. A unilateral right to determine values on a transaction to which they are the opposite side to the client is just such an opportunity. Therefore I must have a mechanic to dispute a calculation that seems “off”. | |||
Now, to be fair, there was a time when in some markets swap dealers ''would'' rip off their clients’ faces at the merest opportunity. “Cheapest to deliver” options in managed CDO portfolios spring unhappily to mind. Banks used to “prop trade” a lot more than they do now. It is weird to trade derivatives with a bank you know is making directional money rather than accepting commissions. It has a stark conflict of interest. The Volcker rule has at least dampened that part of the market; the implosion of the world economy in 2008 killed off CDOs. | |||
How strongly each feels about its right to ''query'' or ''dispute'' the {{isdaprov|Calculation Agent}}’s determinations will depend on the sort of products they’re expecting to trade: [[FX]] and simple [[equity derivative|equity derivatives]] have deep, liquid, observable markets, and as there’s little scope for picking a fight, a [[dealer]] {{isdaprov|Calculation Agent}} may not be bothered about ceding rights to dispute its calculations. Expect a different reaction should you seek to second-guess your [[dealer]]’s marks on exotic [[credit derivative|credit derivatives]], on the other hand. These rely enormously on the dealer’s internal models, pricing curves and other kinds of idiosyncratic financial [[bullshit|alchemy]] that are almost certainly unique to the [[dealer]] in question. | |||
{{sa}} | {{sa}} | ||
*{{eqderivprov|Determining Party}} | *{{eqderivprov|Determining Party}} | ||
{{ref}} | {{ref}} | ||