Will be sent out by swap dealer, signed and returned by counterparty Confirm includes the economic terms of the trade Confirm can also include additional terms (i.e., mutual break clauses, etc.)
View the ISDA Documentation Center here Contains term common to all counterparties
Credit Even Upon Merger
Agreement to Deliver Documents
Certificates of Incorporation
Certificates of Incumbency
Board Resolutions — allowing the use of derivatives
Legal Opinion from corporate auditors
Security Pledges, Guarantees, etc. related to credit support
For example: if a counterparty had a bank loan and a swap, the bank would incorporate the securites agreement and the loan document into the ISDA so that a common set of default provisions would apply to the loan and the swap, and security would be available to support both exposures.
Other Provisions: Set-Off
Additional Terms for FX Transactions & Currency Options
The largest change is the Collateral Support Annex (CSA). Before, these were highly customized agreements reflecting the relative opinoins of the two institutions. Again, will depend on the country booking the swap, but will be a STANDARDIZED contract.
Uncleared derivatives is still documented in a similar way as was done pre Dodd-Frank. The main differences were certain Standardizations.
The ISDA Master Agreement is an overarching contract covering all derivatives contracts with a customer. Even from the first iteration in 1992, most of the terms were standardized. Today in a post Dodd-Frank era The ISDA Master Agreement for Uncleared Derivatives is even more standardized that before.
On that basis a Specified Entity is an affiliate of a counterparty which is covered by the Master Agreement for Cross Default in the event of bankruptcy or default of a subsidiary. The fifth Termination Event is called Credit Event Upon Merger (Section 5(b)(v) in 2002 ISDA Master Agreement).
The aim is to draw in those members of your counterparty’s group (such as its parent or asset rich fellow subsidiaries) whose relationship is so close to your counterparty that if an Event of Default happened to them it would be very likely to affect your counterparty seriously too.
A specified entity is one that is crucially important to the Parent Company or financially substantial companies to a Holding Company:
In all cases which Specified Entities apply to each party is a credit decision. Specified Entities is a way of collapsing down all transaction at once. This can provide an advantage to the customer who may have profitable swaps on one entity and losing swaps in another. Cross default may mean the counterparty doesn’t have to pay a loss it cannot afford.
Big companies are often able to negotiate that Specified Entities will not apply.
While Specified Entities are not always needed, a counterparty which is a corporate holding company whose main financial substance of the corporate’s holding company is in those subsidiaries, the bank’s credit officer may want them as Specified Entities.
The Addendum A includes very specific terms and conditions.
Another document which has become more standardized is the SCSA, which spells out the threshold level when collateral will be required. Today this includes:
The SIMM codified uncleared derivative contracts and made them all more standard so as to place all counterparties on the same level.
All swaps executed on SEF are cleared at a CCP. Typically the SEF affirmed the transaction with both counterparties then onboarded to the Clearinghouse. However, the costs incurred by the dealer will depend on how many brokers are between the end user and the clearinghouse. You can read more about these relative costs here »
Agreement between clearinghouse and clearing member
Agreement between final client and clearing member firm Covers execution and clearing member “agency” submission of swaps
RECOMMENDED COMMON PRINCIPLES FOR RELATIONSHIPS BETWEEN CUSTOMER AND EB AND CM (November 2009)
The principles are intended to facilitate negotiation of relevant agreements in the context of different clearing platforms.
FIA-ISDA CLEARED DERIVATIVES EXECUTION AGREEMENT
The Cleared Derivatives Execution Agreement is a template for use by cleared swaps market participants in negotiating execution-related agreements with counterparties to swaps that are intended to be cleared.
FIA-ISDA CLEARED DERIVATIVES ADDENDUM
The FIA-ISDA Cleared Derivatives Addendum is a template for use by cleared swaps market participants to document the relationship between a clearing member and its customer for purposes of clearing over-the-counter derivatives transactions (referred to as “Cleared Derivatives Transactions”).
FIA-ISDA CLEARED DERIVATIVES EXECUTION AGREEMENT – Version 1.1
(Version 1.1, published September 20, 2012, replaces Version 1)The Cleared Derivatives Execution Agreement is a template for use by cleared swaps market participants in negotiating execution-related agreements with counterparties to swaps that are intended to be cleared through U.S. Futures Commission Merchants. The Memorandum explains the changes between Version 1 and Version 1.1.
ISDA/FBF Annex to the Client Clearing Addendum
This Annex is a template for use by cleared swaps market participants with the ISDA/FOA Client Cleared OTC Derivatives Addendum where the underlying master agreement is an AFB/FBF Master Agreement. It includes a form of paragraph 11 to the ISDA 1995 Credit Support Annex that can be used with the Addendum where the underlying agreement is an ABF/FBF Master Agreement.
ISDA/FIA CLEARED DERIVATIVES EXECUTION AGREEMENT (EU principal-to-principal arrangements)
The non-US, English law Cleared Derivatives Execution Agreement is a template for use by market participants in negotiating execution-related agreements with counterparties to swaps that are intended to be cleared.
Swaps Documenation is handled differently depending on how the contract is cleared.
Agreement between clearinghouse and clearingmember
Agreement between final client and clearing member firm Covers execution and submission of swaps