International Swaps and Derivatives Association, Inc.International Swaps and Derivatives Association, Inc.

Understanding the 1992 ISDA Master Agreements

New ISDA Master Agreement

Hotel Inter-Continental Sao Paulo, Brazil

August 6, 2002

Robert PickelExecutive Director and Chief Executive Executive Director and Chief Executive

OfficerOfficerISDAISDA

ISDAISDA

New ISDA Master Agreement

Genesis in ISDA’s “Strategic Documentation Review”

A review of certain elements of ISDA’s documentation architecture following market difficulties in 1997 and 1998

ISDA working groups addressed: termination, valuation and close-out issues force majeure and impossibility master agreement structural issues – leading to

publication of Cross-Agreement Bridge

ISDAISDA

New ISDA Master Agreement Termination, Valuation and Close-Out

Issues

Changes to Sections 5 and 6:

Grace Periods

Market Quotation, Loss, Replacement Value and Close Out Amount

ISDAISDA

New ISDA Master Agreement:

Grace Periods

Grace Periods shorter grace periods

- Failure to Pay or Deliver (Section 5(a)(i)): one Local Business Day

- Bankruptcy (Section 5(a)(vii)) : 15 Calendar Days

- Default under Specified Transaction (Section 5(a)(v)): one Local Business Day

ISDAISDA

New ISDA Master Agreement:

Market Quotation, Loss and Replacement Value

Should there be a single valuation method, or a choice between two methods?

End User concerns about consistency of application

A working group has been created to draft a new definition “Close Out Amount”

ISDAISDA

New ISDA Master AgreementClose Out Amount

Close Out Amount overriding principle is good faith and commercial reasonableness.

combines elements of both Market Quotation and Loss

maximizes flexibility of Non-defaulting Party

does not require strict procedures of Market Quotation

ISDAISDA

New ISDA Master Agreement Illegality and Force Majeure

Illegality: events beyond parties’ control that result from changes in laws or government orders: Section 5(b)(i)

Force Majeure Event: events beyond parties’ control that fall outside Illegality but still hinder or prevent performance of party’s obligations: Section 5(b)(ii)

ISDAISDA

New ISDA Master Agreement: Illegality and Force Majeure

Illegality and Force Majeure Event:• Subject to waiting period – only

becomes Termination Event once waiting period expires

• Illegality waiting period: three Local Business Days

• Force Majeure Event waiting period: eight Local Business Days

ISDAISDA

New ISDA Master Agreement: Other Proposed Changes

Expanded definition of “Specified Transaction” (relevant for purposes of Default under Specified Transaction)

Interest and compensation provisions: consolidate and rationalize?

Notices

NY:36010.2

ISDAISDA

New ISDA Master Agreement: Other Proposed Changes

New Master Agreement will also likely:

Delete first method

Include a set-off clause