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Template:M intro isda qualities of a good ISDA (view source)

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In which JC ventures forth, uninvited, onto the topic of what makes a good ISDA. The same things, we rather think that make any good commercial contract, but ISDA is what we know so we should go with that.
In which JC ventures forth, uninvited, onto the topic of what makes a good ISDA. The same things, we rather think that make any good commercial contract, but ISDA is what we know so we should go with that.


The pre-printed master agreement is what it is — it was drafted, so conventional wisdom has it, to ''avoid'' controversy — so when we talk about the “qualities of a good ISDA” we mean of course its {{isdaprov|Schedule}}. That is where all the skirmishes are.
The pre-printed Master Agreement is what it is — it was drafted, so conventional wisdom has it, from granite and so as to ''avoid'' controversy — so when we talk about the “qualities of a good ISDA” we mean of course the qualities of a good ISDA ''{{isdaprov|Schedule}}''. It is over that appendage that you will conduct all your skirmishes.


A scan of the subheads will reveal five basic qualities:  fairness, clarity, consistency, simplicity and aptness to instil ''confidence''.  
A scan of the sub-headings to this article will reveal five basic qualities:  ''fairness'', ''clarity'', ''consistency'', ''simplicity'' and aptness to instil ''confidence''.
These qualities interact and depend on each other.


''Fair'' agreements must be ''clear'' for customers to realise they are fair. ''Clear'' agreements will inspire ''confidence'', in your own staff, thus distracting them from the [[Casanova principle]] and toward ''fairness''. ''Clarity'' and ''fairness'' lends itself to ''consistency'', since your customers will find less cause to negotiate. ''Clarity'', ''fairness'', ''confidence'' and ''consistency'' make for ''simplicity'' a simple record that is easy to maintain, roll out and, heaven forfend, enforce.
These qualities interact with and, in large part, depend on each other. They are in symbiosis.  


===Fair===
''Fair'' agreements must be ''clear'' for customers to realise they are fair. ''Clear'' agreements will inspire ''confidence'', in your own staff, thus distracting them from the temptations of [[Casanova principle|Casanova’a principle]] and toward ''fairness''. ''Clarity'' and ''fairness'' lend themselves also to ''consistency'', since you will treat your customers the same way — with equanimity — and as such they will find less cause to negotiate. ''Clarity'', ''fairness'', ''confidence'' and ''consistency'' make for ''simplicity'': a simple record that is easy to  create, maintain, roll out and, heaven forfend, enforce.
 
===Fairness===
{{Quote|“There could be no negotiating with terrorists.”
{{Quote|“There could be no negotiating with terrorists.”
:—Attributed to Richard Nixon}}
:—Attributed to Richard Nixon}}
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In any case, the [[commercial imperative]] is so overwhelming a factor in ongoing business relationship that there is little point in asking for, let alone achieving, terms that go beyond “fair”. ''No-one will ever use them''. Seeing as, all other things being equal, you will conclude a fair contract faster than an unfair one — [[the ideal negotiation is no negotiation|the ideal negotiation is ''no'' negotiation]] — you should start with a fair template.
In any case, the [[commercial imperative]] is so overwhelming a factor in ongoing business relationship that there is little point in asking for, let alone achieving, terms that go beyond “fair”. ''No-one will ever use them''. Seeing as, all other things being equal, you will conclude a fair contract faster than an unfair one — [[the ideal negotiation is no negotiation|the ideal negotiation is ''no'' negotiation]] — you should start with a fair template.


===Confident===
===Confidence===
{{Drop|Y|our form should}} also inspire confidence, and not fear, in your own negotiating team. It is a fact of life that negotiators these days have less combat experience and expertise than they once had. To do a good job they must be comfortable with their tools. They should ''understand'' the templates and the products they govern. They should go beyond the contract’s formal articulation to grasp the underlying commercial drivers of the relationship. <ref>JC is well aware that, among [[management consultant]]s, this view borders on the heretical.</ref> If they do, they can help you identify the parts of the contract that aren’t achieving what they seem to be.
{{Drop|Y|our form should}} also inspire confidence, and not fear, in your own negotiating team. It is a fact of life that negotiators these days have less combat experience and expertise than they once had. To do a good job they must be comfortable with their tools. They should ''understand'' the templates and the products they govern. They should go beyond the contract’s formal articulation to grasp the underlying commercial drivers of the relationship. <ref>JC is well aware that, among [[management consultant]]s, this view borders on the heretical.</ref> If they do, they can help you identify the parts of the contract that aren’t achieving what they seem to be.


By contrast, a negotiator who [[fear]]<nowiki/>s her material will hide behind the formal rules you give her to manage it. She won’t be drawn to discuss anything live — if she doesn’t understand the form and what it is trying to achieve, why would she put that vulnerability on show? — so will hide behind her keyboard, thereby contributing to the familiar experience of electronic trench warfare: she will lob long, bulleted issues lists over no-man’s-land and into the enemy’s advanced positions, or escalate that way internally to risk departments, where the missives will hiss and sputter, being passed about for days, before eventually being lobbed back, annotated in [[BLOCK CAPITALS]], appended with yet more more bullets points. This impasse can go last, as it did in Ypres, for years. You could write [[strange negotiation|war poetry]] about it.  
By contrast, a negotiator who [[fear]]<nowiki/>s her material will hide behind the formal rules you give her to manage it. She won’t be drawn to discuss anything live — if she doesn’t understand the form and what it is trying to achieve, why would she put that vulnerability on show? — so will hide behind her keyboard, thereby contributing to the familiar experience of electronic trench warfare: she will lob long, bulleted issues lists over no-man’s-land and into the enemy’s advanced positions, or escalate that way internally to risk departments, where the missives will hiss and sputter, being passed about for days, before eventually being lobbed back, annotated in [[BLOCK CAPITALS]], appended with yet more more bullets points. This impasse can go last, as it did in Ypres, for years. You could write [[strange negotiation|war poetry]] about it.


Reverence to and intimidation by your own contractual form is madness, of course. While we should not be surprised, in our [[High modernism|high modernist]] times, that we fetishise the [[Substance and form|form over the substance]], ''deference'' to a contractual form that is plainly suboptimal is no cause for celebration. A confident negotiating team ''engages'' with the form rather than deferring to it. This is the negotiator’s version of “[[jidoka]]”: the human touch that makes the machine sing.
Reverence to and intimidation by your own contractual form is madness, of course. While we should not be surprised, in our [[High modernism|high modernist]] times, that we fetishise the [[Substance and form|form over the substance]], ''deference'' to a contractual form that is plainly suboptimal is no cause for celebration. A confident negotiating team ''engages'' with the form rather than deferring to it. This is the negotiator’s version of “[[jidoka]]”: the human touch that makes the machine sing.


=== Clear ===
=== Clarity ===


{{Drop|[[Qualities of a good ISDA|O]]|f the many}} [[The purpose of an ISDA|purposes of the ISDA]], most deal with the ''present'' — desired capital treatment; the availability of close-out [[Close-out netting|netting]], margin  obligations — and the ''past''  —representations and warranties, and [[Section 2(a)(iii) - ISDA Provision|conditions precedent to transacting and continuing to perform]] — but only one deals with the ''future''. The close-out terms: the circumstance in which one can break the glass, sound the alarm and head for the lifeboats.  
{{Drop|[[Qualities of a good ISDA|O]]|f the many}} [[The purpose of an ISDA|purposes of the ISDA]], most deal with the ''present'' — desired capital treatment; the availability of close-out [[Close-out netting|netting]], margin  obligations — and the ''past''  —representations and warranties, and [[Section 2(a)(iii) - ISDA Provision|conditions precedent to transacting and continuing to perform]] — but only one deals with the ''future''. The close-out terms: the circumstance in which one can break the glass, sound the alarm and head for the lifeboats.  
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The reality is that most of the weapons you need are embedded in the pre-printed form of the ISDA master agreement itself. Do not mess around with these, try to resist the temptation to unnecessarily augment them, and have ready-at-hand a simple step-by-step guide to how to get through them without screwing anything up. Like [[Closing out an ISDA|this one]].
The reality is that most of the weapons you need are embedded in the pre-printed form of the ISDA master agreement itself. Do not mess around with these, try to resist the temptation to unnecessarily augment them, and have ready-at-hand a simple step-by-step guide to how to get through them without screwing anything up. Like [[Closing out an ISDA|this one]].


=== Consistent ===
=== Consistency ===
{{Drop|I|t helps with}} clarity if you have confidence, in a scrape, that you know what your ISDA is going to say where it matters. You can be sure of this if you are control quality where it matters. (Where it doesn’t — where the request is to acquiesce to a counterparty’s modern slavery policy — which it win’t disclose to you — or agreeing to the ethical treatment of the polar  bears etc, you can afford to take a view.)
{{Drop|I|t helps with}} clarity if you have confidence, in a scrape, that you know what your ISDA is going to say where it matters. You can be sure of this if you are control quality where it matters. (Where it doesn’t — where the request is to acquiesce to a counterparty’s modern slavery policy — which it win’t disclose to you — or agreeing to the ethical treatment of the polar  bears etc, you can afford to take a view.)


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It is true that you cannot change the negotiating position of a truculent customer, but by rebating your documents to something more agreeable you perhaps avoid painting the clients into a corner from which it will not then back down in the first place.
It is true that you cannot change the negotiating position of a truculent customer, but by rebating your documents to something more agreeable you perhaps avoid painting the clients into a corner from which it will not then back down in the first place.


=== Simple ===
=== Simplicity ===
All else being equal, make it ''simple''. This is somewhat conditional, by serenity's prayer, your counterparty night have a ten for its own convoluted terms, and it takes advanced Dale Carnegie diplomacy to persuade such a chap not to self-harm — but at the least do not be the progenitor of unnecessary complication. Convolution causes confusion, confusion leads to explanation, explanation leads eventually to resolution, but that resolution takes time, burns resources, and comes at the cost of formal or even substantive variance from your standard.  
All else being equal, make it ''simple''. This of course, depends on your counterpart: you can’t clap one-handed, and a dogged pettifogger with a yen for its own convolutions will not be assuaged by your best intentions, however noble. She will have her [[severability]] boilerplate, and that is that. 
 
But [[Pragmatist’s prayer|Serenity’s Prayer]] is your friend, all the same. Sure; there are things you cannot change — bear them with good grace and a joyful heart — but just as many yet that you ''can''. You may have to live with whatever pedantry is flung back to you, but do not ''court'' it by needlessly complicating what you send out.
 
Convolution causes confusion, confusion causes fear, requires explanation, explanation leads — perhaps, eventually — to resolution, but that resolution takes time, burns resources, and comes at the cost of formal or even substantive variance from your ideal, and all this mucking around will be accompanied by pedantry, should your counterparty’s advisers be given to pedantry.
 
In essence: having to explain something that ''could'' have been clear in the first place, without loss of emphasis is, at least, wasted energy.
 
Use plain language. Short sentences, modern language. Use “you must ~” rather than “Party B shall be obligated to ~”; Use “we may ~” rather than “Party A shall be entitled but, for the avoidance of doubt, not obliged to ~”.
 
Write ''agreeably''. You have choices in how your institution expresses itself: these can influence the critical path of your negotiation. ''Don’t poke your customer with a [[sharpened stick]]''. Take lessons from Dale Carnegie: try to win friends and influence people. There are polite, agreeable and damnable ways of saying the same thing. Compare:
 
{{Quote|Customer shall be obliged forthwith upon demand and from time to time unconditionally to indemnify and hold the Bank harmless, without set-off, limitation or counterclaim, in the event the Bank or its affiliates, agents, nominees or sub-custodians, howsoever described, suffers or incurs, or determines in its absolute discretion that it is or may be likely to suffer or incur any custom, duty, excise, taxation, stamp or withholding, levy or charge of whatever nature, including penalties and charges and legal expenses incurred in respect thereof, with regard to or in respect of any of the Customer’s assets held by or in the name of or in the custody network of the Bank in connection with this Agreement or otherwise.}}


Having to explain something that should have been clear in the first place is, at the least wasted energy.
with the following:


Use plain language. Short sentences, modern language. Write agreeably: “must” instead of “shall be obligated to —”; “may” instead of “shall be entitled but, for the avoidance of doubt, not obliged to —”.
{{Quote|“If we incur any tax while holding assets for you under this contract, you must reimburse us upon request.”}}


But simple aids easy comprehension at the time when things are going to hell.
Simple, too, aids easy comprehension at a time when things are going to hell.


It is defiantly standard, to the point where some will amend the schedule by reference to the line numbers in the pre-printed standard. (Don't do this: there are reformatted versions floating around with different pagination and it makes for confusion when your ISDA is scanned as text into the Edgar database etc.). It has twenty one years of history, too, and is now so canonical it is hard to imagine ISDA publishing a new one.
It is defiantly standard, to the point where some will amend the schedule by reference to the line numbers in the pre-printed standard. (Don't do this: there are reformatted versions floating around with different pagination and it makes for confusion when your ISDA is scanned as text into the Edgar database etc.). It has twenty one years of history, too, and is now so canonical it is hard to imagine ISDA publishing a new one.
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