Template:Isda 1(b) summ: Difference between revisions

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It wouldn’t be ISDA if there weren’t a [[hierarchy]] clause; like all [[hierarchy]] clauses, this one states what ought to be obvious: the pre-printed {{isdama}} itself sits at the ''bottom'' of the hierarchy, is modified by the {{{{{1}}}|Schedule}}; once that is negotiated and stuck into the netting database, the {{{{{1}}}|Schedule}} sits there, ungainly, unloved and unregarded until [[apocalypse|the Great King of Terror comes down from the sky]]<ref>© Nostradamus</ref> and may be (but generally isn’t) modified as needs be for each {{{{{1}}}|Transaction}} by the {{ {{{1}}}|Confirmation}}.  
It wouldn’t be ISDA if there weren’t a [[hierarchy]] clause; like all [[hierarchy]] clauses, this one states what ought to be obvious: the pre-printed {{isdama}} itself sits at the ''bottom'' of the hierarchy, is modified by the {{{{{1}}}|Schedule}}; once that is negotiated and stuck into the netting database, the {{{{{1}}}|Schedule}} sits there, ungainly, unloved and unregarded until [[apocalypse|the Great King of Terror comes down from the sky]]<ref>© Nostradamus</ref> and may be (but generally isn’t) modified as needs be for each {{{{{1}}}|Transaction}} by the {{ {{{1}}}|Confirmation}}.  
One quick point that only needs saying when busy-bodies from internal audit come looking for worms and earwigs under rocks: you never, never, ''never'' inline amend the {{isdama}}. If you want to amend its terms —


In point of fact the {{ {{{1}}}|Confirmation}}s don’t tend to ''modify'' anything in the Master or {{ {{{1}}}|Schedule}}, but rather builds on them, but if there is inconsistency — and with a document as pedantic and overwrought as the {{isdama}} you never know — then the most specific, recently edited document will be the one that prevails.
In point of fact the {{ {{{1}}}|Confirmation}}s don’t tend to ''modify'' anything in the Master or {{ {{{1}}}|Schedule}}, but rather builds on them, but if there is inconsistency — and with a document as pedantic and overwrought as the {{isdama}} you never know — then the most specific, recently edited document will be the one that prevails.


All of this follows from general principles of contractual interpretation and common sense communication, of course.
All of this follows from general principles of contractual interpretation and common sense communication, of course.
=====A message to internal audit and quality control teams=====
One quick point that only needs saying when busy-bodies from [[internal audit]] come on their biannual trip hunting for worms and earwigs under rocks in your neighbourhood: you — and by that we mean ''one'' — never, never, ''never'' “inline” amends the form of {{isdama}}. It is ''[[Sacred fourteen|sacred]]''. ''Never'' to be edited. If, er, ''one'' wants to amend its terms — of ''course'' one does, one is a [[legal eagle]] and one’s client is [[Special pleading|special]] — you do that ''remotely'' by setting out the amendment in Part 5 of the {{{{{1}}}|Schedule}}.
Why labour this obvious point? Because [[JC]] has had to explain to a disbelieving ''external'' audit consultancy, retained to ensure quality control over a portfolio of tens of thousands of master trading agreements, that there was no need for a control measuring the number of agreements that had been inline amended; no need for a core-sample test, a gap analysis or a nine-month all-points operational risk [[deep dive]] to be sure that this was the case — and it was an argument that ran for three weeks and which JC almost ''lost''.
No-one, ever, inline amends the ISDA.
The {{isdama}} is shot through with unimaginative design, unnecessary verbiage and conceptual convolution, but this is one design principle the [[’squad]] got perfectly right: “offboarding” amendments to the Schedule does several smart things: it creates a neutral standard for all participants offering no scope for interrogation by sancimonious quality controllers, it makes very clear at a glance what has changed from the standard and most importantly it ''disincentivises formalistic fiddling'': it is a rare — though by no means unknown — kind of pedant who insists on insertions like, “Section {{{{{1}}}|2(a)(i)}} is amended by adding, “, as the case may be” before the full stop on the third line.”

Latest revision as of 22:26, 13 March 2024

It wouldn’t be ISDA if there weren’t a hierarchy clause; like all hierarchy clauses, this one states what ought to be obvious: the pre-printed ISDA Master Agreement itself sits at the bottom of the hierarchy, is modified by the {{{{{1}}}|Schedule}}; once that is negotiated and stuck into the netting database, the {{{{{1}}}|Schedule}} sits there, ungainly, unloved and unregarded until the Great King of Terror comes down from the sky[1] and may be (but generally isn’t) modified as needs be for each {{{{{1}}}|Transaction}} by the {{ {{{1}}}|Confirmation}}.

In point of fact the {{ {{{1}}}|Confirmation}}s don’t tend to modify anything in the Master or {{ {{{1}}}|Schedule}}, but rather builds on them, but if there is inconsistency — and with a document as pedantic and overwrought as the ISDA Master Agreement you never know — then the most specific, recently edited document will be the one that prevails.

All of this follows from general principles of contractual interpretation and common sense communication, of course.

A message to internal audit and quality control teams

One quick point that only needs saying when busy-bodies from internal audit come on their biannual trip hunting for worms and earwigs under rocks in your neighbourhood: you — and by that we mean one — never, never, never “inline” amends the form of ISDA Master Agreement. It is sacred. Never to be edited. If, er, one wants to amend its terms — of course one does, one is a legal eagle and one’s client is special — you do that remotely by setting out the amendment in Part 5 of the {{{{{1}}}|Schedule}}.

Why labour this obvious point? Because JC has had to explain to a disbelieving external audit consultancy, retained to ensure quality control over a portfolio of tens of thousands of master trading agreements, that there was no need for a control measuring the number of agreements that had been inline amended; no need for a core-sample test, a gap analysis or a nine-month all-points operational risk deep dive to be sure that this was the case — and it was an argument that ran for three weeks and which JC almost lost.

No-one, ever, inline amends the ISDA.

The ISDA Master Agreement is shot through with unimaginative design, unnecessary verbiage and conceptual convolution, but this is one design principle the ’squad got perfectly right: “offboarding” amendments to the Schedule does several smart things: it creates a neutral standard for all participants offering no scope for interrogation by sancimonious quality controllers, it makes very clear at a glance what has changed from the standard and most importantly it disincentivises formalistic fiddling: it is a rare — though by no means unknown — kind of pedant who insists on insertions like, “Section {{{{{1}}}|2(a)(i)}} is amended by adding, “, as the case may be” before the full stop on the third line.”

  1. © Nostradamus