Isda publishes new master agreement
Industry trade body the International Swaps and Derivatives Association has produced a new ‘master agreement’, a legal contract designed to standardise over-the-counter derivatives deals. It is the first time the document has been revised since 1992
The calculation of losses in the event of a counterparty defaulting is among the changes. The old document gave dealers two methods by which they could calculate their loss – one based on attaining market quotes to work out the value of the contract, the other based on the dealer simply guessing the expected loss.
Isda said the new, single method, which is called 'close-out amount', reflects the increase in volume and complexity of transactions during the past decade. Kimberley Summe, general counsel with Isda in New York, said the new rule still gives dealers “flexibility” in the way they calculate the loss. “But it is combined with objectivity in what is considered to be commercially reasonable data,” Summe said.
Isda also removed 'grace periods' associated with default from three days to one day. The grace period gives a defaulting party time to remedy its failure before a deal is finally closed. And the association included a 'set-off provision' in the new agreement, which lets the non-defaulter explore the possibility of finding other assets, such as a deposit account, that could be attached and set-off against the amount the defaulting party owes.
Meanwhile, the 2002 standard includes a 'force majuere termination event' clause, which lets parties terminate transactions affected by certain events beyond their control, such as natural or man-made disasters.
Robert Pickel, Isda chief executive, said the new master agreement represents a milestone in the association's efforts to reduce risk and promote practices conducive to the efficient conduct of the derivatives business. “It also strengthens the ability of market participants to more effectively manage risk amid the continuing growth and development of the derivatives industry,” added Pickel.
Isda said the 2002 master agreement is the product of two years of work that included hundreds of individuals representing companies from all market segments and regions.
Isda also released new equity derivatives guidelines, with coverage of various barrier options and forwards, and provisions relating to the pricing of products in the event of a disruption to trading activity. It intends to publish new credit derivatives guidelines in the coming weeks.
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (point 2.4), printing is limited to a single copy.
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (clause 2.4), an Authorised User may only make one copy of the materials for their own personal use. You must also comply with the restrictions in clause 2.5.
If you would like to purchase additional rights please email info@risk.net
More on Regulation
Insurance double-hatters like Apollo can expect more scrutiny
Regulators are homing in on conflicts of interests at private-equity-owned insurers
The boy who cried ‘outlier’: false alarms could dog EBA test
Analysis reveals banks deemed outliers by net income test are profitable post-shock, so how useful is the test?
Modernising compliance functions with regtech
Regtech addresses the complexities of regulatory requirements, offering innovative tools to modernise compliance functions, streamline processes and enhance efficiency. This article explores its role in compliance and reporting within the banking sector,…
For the Fed discount window, destigmatisation starts at home
US supervisors must change tack to encourage central bank liquidity utilisation, writes Bill Nelson
Study finds just 10 banks plan to apply for FRTB models
Research provides extra insight on reasons for decline in internal models
EU banks hedge net interest income to pass new IRRBB test
Would-be outliers look to cut sensitivity of cashflows to rate moves, but at what cost?
Banks cry foul over shock decision from Basel Committee
Asset and liability management professionals question severity of criteria in revised IRRBB tests
Fresh EU push for single securities supervisor to compete with US
But MEP expresses ‘concern’ EU nations will stall revival of capital markets union