Template:M summ 2002 ISDA Relationship Between Parties
Non-Reliance
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.
- ↑ This rule is progressively honoured in the regulatory breach, by the way, with things like best execution, but it remains the operating theory.