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| {{essay|2002 ISDA|Party A and Party B}} | | {{essay|2002 ISDA|Party A and Party B}} |
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| ===BINO — bilateral in name only===
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| But with the exception of that a class of inter-dealer swap relationships, {{isdama}}s are “bilateral” only really in name: one party — the [[swap dealer]], provides swap products to a client, who consumes them. The client provides the impulse to trade; the client elects when to exercise options and terminate positions. The [[dealer]] hedges calculates values, and is burdened with [[regulatory capital]] charges if it doesn’t get its [[close-out netting]] documentation right.
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| This has led to two kinds of bother: firstly a bit of a squabble as to who gets to be Party A and who Party B; since [[swap dealer|dealers]] set up their templates to assume ''they'' will be Party A and their customers Party B, when immovable object meets irresistible force it can be unseemly. At least one swap dealer solved this problem by electing to be Party B as standard, which only confused its big Asset Management clients who were unused to being Party A.
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| Furthermore, when labouring over some neatly [[iatrogenic]] [[co-calculation agent]] fallback dispute mechanism upon which your opponent is hotly insisting — and be assured, you will spend far more time doing this than can ever be justified by your reward, in heaven or on earth, for doing so — it is all to easy to get your “[[Party A]]s” and “[[Party B]]s” back to front, thus burying deep in your fossil record a technical deficiency that no-one will notice until, eighteen years later, when the world once again nearing [[Apocalypse]], the [[Credit officer|chief credit officer]] is running around with her hair on fire, and everyone is glaring at the docs team because the ''key goddamn protection'' has a drafting glitch in it.
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| ===The real distinction: dealer and customer===
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| And — beyond the small class of interdealer swap contracts that constitute a dealer’s funding programme — there ''is'' a material distinction between the parties. The ''real'' source of asymmetry is not whether one is [[long]] or [[short]], or buyer or seller but whether a given party comes to the relationship as customer or dealer.
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| A “customer” or “end user” uses the {{isdama}} to ''change'' its absolute exposure to a given risk or underlier. To take a risk or to lay one off.
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| A dealer uses the {{isdama}} to earn a [[commission]]. It does this, yes, by providing someone ''else'' (the customer) a changed absolute exposure, but at the same time carefully hedges that exposure so that, but for those fees, the dealer is market ''flat''. Now, it is the nature of the beast that a dealer can’t always ''stay'' market flat: it is too dependent upon the performance of its customers, counterparties and models for that — but this is not for want of trying. The {{isdama}} is as much a broker/customer document as any other.
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| In any case almost all {{isdama}}s will be between a ''customer'' and a ''dealer''. A few will be inter-dealer. Almost ''none'' will be inter-customer.
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| {{sa}}
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| *{{cotw}}
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| *[[Close-out]]
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