International Swaps and Derivatives Association, Inc. International Swaps and Derivatives...
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International Swaps and Derivatives International Swaps and Derivatives Association, Inc. Association, Inc. Understanding the 1992 ISDA Master Agreements New ISDA Master Agreement Hotel Inter-Continental Sao Paulo, Brazil August 6, 2002 Robert Pickel Executive Director and Chief Executive Officer Executive Director and Chief Executive Officer ISDA ISDA
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Transcript of International Swaps and Derivatives Association, Inc. International Swaps and Derivatives...
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
