ISDA®
INTERNATIONAL
SWAPS AND DERIVATIVES ASSOCIATION
NEWS RELEASE
For
Immediate Release Wednesday, January 8, 2003 For More
Information, Please Contact: ISDA
ISDA PUBLISHES 2002 ISDA MASTER AGREEMENT _________________________________________________ 2002 ISDA Equity Derivatives Definitions
Also Released NEW YORK,
Wednesday, January 8, 2003 – Reflecting
the continued growth and innovation of the derivatives business, the
International
Swaps and Derivatives Association (ISDA) today announced the publication of
the 2002 ISDA Master Agreement and the 2002 ISDA Equity Derivatives
Definitions. (Key Changes) Originally published in 1987 and last revised in
1992, the ISDA Master Agreement is widely recognized as a groundbreaking document that has enabled
the growth of the risk management industry by enhancing legal certainty and
reducing credit risk. It establishes
important international contractual standards, including those governing the
netting of transactions between counterparties, and can be used to document a
wide variety of transactions. Its importance to the global financial
community has been described as “no less than the creation of global law by contractual
consensus.” Reflecting its wide
acceptance, the vast majority of derivatives transactions executed annually
are documented under the ISDA Master. “The 2002 ISDA Master Agreement includes new
provisions that reflect changes in industry dynamics over the past decade,”
said Among the new provisions in the 2002 ISDA Master
Agreement are: -
A single measure of damages standard, “Close-out
Amount,” provides
a means of valuing transactions, reflecting the increase in the volume and
complexity of transactions over the past decade. Close-Out Amount replaces
the Market Quotation and Loss methodology contained in the 1992 Master
Agreement. This enhancement was the
product of dialogue among a broad cross-section of ISDA membership, including
hedge funds, banks and dealers in Asia, Europe and -
A Force Majeure Termination Event now offers parties
the flexibility to terminate transactions impacted by certain events beyond
their control, e.g., natural or man-made disasters. -
The reduction of the grace periods associated with several
Events of Default, including Failure to Pay, Default Under Specified
Transaction and Bankruptcy Events of Default. This reduction reflects
parties’ ability to settle on a more expedited basis, due to the increased
use of technology. The reduction also stemmed from experiences of being
unable to close-out transactions on a timely basis during periods of market
stress, as was encountered in the late 1990s during the Russian debt default
and the Asian currency crisis. - A set-off provision, which is important in default situations because it allows the non-defaulting party to attempt to garner other assets of the defaulting party other than the amounts it is owed. Thus, with a set-off provision, the non-defaulting party can explore whether there are other assets such as a deposit account that can be attached and then set-off against the amount the defaulting party owes the non-defaulting party. The 1992 ISDA Master Agreement did not include a set-off provision. The 2002 ISDA Master Agreement was the product of
a two-year effort that included hundreds of individuals representing firms
from all market sectors and geographic regions. 2002 ISDA Equity Derivatives Definitions
The Association also released the 2002 ISDA Equity
Derivatives Definitions, which responds to industry innovation and members’
needs in several areas, including: -
Expanded product coverage, including barrier
instruments, barrier options and forwards. -
Greater customization in selecting the
consequences of merger events. Thus, the new provisions were structured to
reflect the economic options facing counterparties in situations where the
equities underlying the equity derivative transaction have disappeared or
have been significantly changed as a result of a merger. -
Significant amendments to provisions relating to
the disruption of trading activity, so that an equity can be valued as efficiently and
quickly as possible. Educational Conferences The 2002 ISDA Master Agreement and the 2002 ISDA
Equity Derivatives Definitions are available from ISDA’s web site (www.isda.org). ISDA will publish User’s
Guides for both documents later this year. Throughout 2003, ISDA will host
comprehensive seminars to educate its members across the globe on the many
important updates incorporated into the ISDA Master Agreement since the 1992
edition. For further information, visit www.isda.org.
2002 Credit Derivatives DefinitionsIn the coming weeks, the Association anticipates the
publication of the 2002 ISDA Credit Derivatives Definitions, which will offer
significant enhancements for documenting credit default swaps, including
amendments to incorporate the three Supplements published in 2001, new
settlement provisions and new guarantee and sovereign credit default swap
provisions. About The ISDA Master AgreementThe ISDA Master Agreement is the contractual
foundation for more than 90 percent of derivatives transactions
globally. A wide variety of
transactions based on many different underlying products (interest rate,
currency, equity, commodity, energy and credit) can be documented using the
ISDA Master Agreement together with any of the extensive library of documents
published by ISDA. Close-out netting, the right under the ISDA Master
Agreement to treat the obligations under many different transactions as one
amount owing between the parties upon termination of the Master Agreement, is
a critical risk reduction tool. The values of transactions offset each other,
reducing the credit risk between the parties to the ISDA Master Agreement.
Close-out netting has been estimated to reduce the value of exposures under
derivatives transactions by as much as 70%. Netting under the ISDA Master Agreements is
recognized for regulatory capital purposes, providing a significant economic
benefit for parties who use the ISDA Master Agreement to document
transactions between them. The enforceability of the netting provisions under
the ISDA Master Agreement has been confirmed in almost 40 jurisdictions
around the world. The combination of a comprehensive contract and
the regulatory recognition of netting have facilitated the explosive growth
in the use of derivatives over the last ten years. Summaries of the key modifications to the ISDA Master Agreement and the ISDA Equity
Derivatives Definitions are available at www.isda.org.
About ISDA ISDA is the global trade association representing
leading participants in the privately negotiated derivatives industry. ISDA
was chartered in 1985, and today has more than 600 member institutions from
46 countries on six continents. These members include most of the world’s
major institutions that deal in privately negotiated derivatives, as well as
many of the businesses, governmental entities and other end users that rely
on over-the-counter derivatives to manage efficiently the financial market
risks inherent in their core economic activities. Information about ISDA and its
activities is available on the Association’s web site: www.isda.org. # # # |