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

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It is a curious fact that augmentations to a template — scar tissue from previous wounds —have a habit of sticking to your  legal forms, whereas simplifications do not. This is a cultural matter. It is in your gift to change it. You just need to take hearts and minds with you.
It is a curious fact that augmentations to a template — scar tissue from previous wounds —have a habit of sticking to your  legal forms, whereas simplifications do not. This is a cultural matter. It is in your gift to change it. You just need to take hearts and minds with you.


====== Your forms ======
If you start off with something you know to be offensive do not be surprised when they do not accept it.  
if you start off with something you know to be offensive do not be surprised when they do not accept it.  


A useful rhetorical, seldom posed us this:  
A useful rhetorical, seldom posed, is:  
{{Quote|If someone presented this term to me, would ''I'' accept it?}}
{{Quote|If someone presented this term to me, would ''I'' accept it?}}


Rebase your documents to executable, at least in concept, from the off.  
Rebase your documents to be acceptable to the person on the Clapham omnibus, at least ''in concept'', from the off. Legal advisors are already incentivised to seek changes as a means of demonstrating their [[legal value|value]]. Why start with a form with which any sane advisor would ''have'' to take issue?


====Platinum plating====
====“Platinum plating”====
There is a false economy — at any rate a misalignment of risk and reward — in the widely held belief that “platinum” customers should be offered better terms then regular ones. Some firms even triage their starting point based on the size of the client.
A common gambit here is a sort of “quality triage”: it is a truism that a few special, “[[Platinum client|platinum]]” customers will generate disproportionate revenues for the firm, and a large morass will be reliable but unremarkable. The thinking goes that one should therefore offer “platinum” customers better terms than regular ones, to the point where some firms even offer different starting points to different clients.


This has things precisely backwards. Your platinum generate the most revenue by taking the most risk customers take greater risk and present greater catastrophe.. on a greater scale stop if you are prepared to run this risk with the premium customer then you should be prepared to run it with a smaller custom or two. This will also reduce the time you spend fruitlessly negotiating with customers who you know be generating less of your revenue.
In its unstated assumption that tedious legal wrangling is a kind of punishment for mediocrity, this has things precisely backward: platinum customers generate that colossal revenue by ''taking the most risk'' with the bank’s money. They may be better run, with more powerful systems and heavier infrastructure, but that doesn’t mean they can’t blow up, and if they do they will leave a much bigger crater. These are precisely the clients with whom your legal agreements should be ''strongest''.  


Nor does de-escalating your starting position we can your hand in the negotiation. Your walk away remains your walk away Colin the sooner you get to it the better that it's does not take long tends to focus our customers mind even one a customed to long and rewarding negotiations.
The converse is this: if your [[platinum client]] documentation is fit for the big risk-takers, then ''it is fit for everyone else too''. You don’t need better terms with smaller fry. The purpose of legal documentation is sometimes opaque but it is not ritualistic punishment. Offering “platinum terms” to regular customers will also reduce how much time you spend — ''[[waste]]'' — haggling with customers who will present you less risk and generate less revenue.


Furthermore if you are diligent and consistent in your positioning, customers and their advisors will quickly tyre of banging their heads against a brick wall and will accept what is, after all, a reasonable position.
Nor does lowering your starting bid weaken your negotiating position. Brokerage is not a [[zero-sum game]]. There are no points for securing stronger risk terms than you need — it does not necessarily translate to less risk — and your walk-away point remains your walk-away point however close you start to it. From a resourcing perspective, the sooner you get to agreement, or the walkaway point, the better.


====== Customer pet peeves ======
And if you are diligent, consistent and rigorous in this approach, your customers and their advisors will figure this out.  They will tire of banging their heads against a brick wall for the sake of improving what is already a reasonable position.
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.


=== Simplicity ===
=== Simplicity ===
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.   
All else being equal, make it ''simple''. This, of course, depends on your counterpart: you can’t clap one-handed, and a dogged pettifogger who takes pride in convolution — there are many of these — 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.   
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.  
Convolution causes confusion. Confusion causes fear and requires explanation. Explanation leads — perhaps, eventually — to resolution, but takes time, burns resources, and comes at the cost of variance from your ideal. All this mucking around invites pedantry, should your counterparty’s advisers be given to pedantry. Lawyers, by nature, are 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.
In essence: having to explain something that ''could'' have been clear in the first place, without loss of emphasis is, at least, wasted energy.
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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 ~”.
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:
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.}}
{{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.}}


with the following:
with:


{{Quote|“If we incur any tax while holding assets for you under this contract, you must reimburse us upon request.”}}
{{Quote|“If we incur any tax while holding assets for you under this contract, you must reimburse us upon request.”}}
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Simple, too, aids easy comprehension at a 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.
Almost all the tools you need are in the master. It bears repeating that, in these days of daily [[variation margin]], it will be a rare day when your only option to close out a loss-making ISDA will be a [[NAV trigger]] or a [[key person clause]].  


Almost all the tools you need are in the master. It bears repeating that, in these days of daily variation margin, it will be a rare day when your only option to close out a potentially loss making ISDA will be some bespoke Additional Termination Event like a NAV trigger or a key man provision. One more right will complete the set: a right to call for more margin. Most prime brokers have this. If you can, by close of day, engineer a failure to pay (or an infusion of cash) then your key person trigger, cross default rights, financial reports, representations and warranties are little use to you.
One more right will complete the set: a right to call for more margin. Most [[prime broker]]s have this. If you can, by close of business, engineer a [[failure to pay]] (or an infusion of cash) then your [[key person]] trigger, [[cross default]] rights, financial reports, representations and warranties add little.


[Another argument against bilateral margin: the customer can always close out a trade: the dealer is not on risk, QED, and will always give a price to exit — the unwind price on its hedge. It is not generally a taxable event for the dealer. Dealers can’t unilaterally terminate customer positions, and even where they can — [[synthetic prime broker]]s generally have the ''right'' to — they generally won’t, without extreme provocation, ''because that would upset the customer''.
[Another argument against bilateral margin: the customer can always close out a trade: the dealer is not on risk, QED, and will always give a price to exit — the unwind price on its hedge. It is not generally a taxable event for the dealer. Dealers can’t unilaterally terminate customer positions, and even where they can — [[synthetic prime broker]]s generally have the ''right'' to — they generally won’t, without extreme provocation, ''because that would upset the customer''.
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