Derivatives — ISDA documentation framework

The International Swaps and Derivatives Association (ISDA) has produced documentation that is used globally by derivative market participants. In order to be able to document derivative transactions an understanding of ISDA documentation is required. The ISDA documentation architecture for over-the-counter derivatives involves layers of documentation. While constituting a single agreement the key layers are as follows:

• • Master Agreement;
• • Schedule;
• • Credit support documents (only applicable if the parties require collateral or security to be provided); and
• • Confirmations.

This guidance note explains the key ISDA documents, their framework and how they interrelate.

See ISDA documentation framework.

ISDA master agreements and schedules — key provisions

This guidance note summarises the key provisions which are applicable to both the 1992 ISDA Master Agreement and the 2002 ISDA Master Agreement and their related schedules. It also sets out the three key concepts the ISDA Master Agreement is based upon. They are:

• • a single agreement;
• • flawed asset (right to payment); and
• • close-out netting.

See ISDA master agreements and schedules — key provisions.

Guide to completing the ISDA Schedule

This guidance note provides guidance on what needs to be considered when completing the ISDA Schedule, from correct identification of the parties to the transaction to the need to include additional termination events.

Scope of the ISDA master agreement — sections 1 (interpretation) and 2 (obligations)

This guidance note describes in detail sections 1 and 2 of the ISDA Master Agreement to assist in understanding each section. This will assist when entering into an ISDA agreement.

Section 1 of the ISDA Master Agreement sets out the hierarchy of the master agreement, schedule, and confirmation and elaborates on the single agreement concept. In section 2 (obligations), the parties make the commitment to pay or deliver all that is required of them in each confirmation.

See Scope of the ISDA master agreement — sections 1 (interpretation) and 2(obligations).

Scope of the ISDA master agreement — section 3 (representations)

This guidance note describes in detail the contents of the Section 3 representations of the ISDA Master Agreement and the importance of the representations made under an ISDA. Representations are pre-contractual statements of fact made by a party to a contract which induce another party to enter into that contract.

In s 3 of the ISDA Master Agreement (representations), the parties make a number of representations to one another.

See Scope of the ISDA master agreement — section 3 (representations).

Scope of the ISDA master agreement — section 4 (agreements)

In s 4 (agreements) of the Master Agreement, the parties make agreements as to certain points. These “agreements” are essentially covenants to perform or not perform certain actions.

This guidance note describes the nature of these covenants.

See Scope of the ISDA master agreement — section 4 (agreements).

ISDA confirmations

A confirmation sets out the commercial terms of a particular transaction as agreed between the contracting entities. It is an integral part of any OTC derivative transaction.

This guidance note explains:

• • how confirmations fit into the ISDA documentation framework;
• • the purpose of confirmations and what they contain;
• • the confirmation documentation; and
• • the legal effect of confirmations.

See ISDA confirmations.

ISDA definitions

The ISDA definitions provide a common set of defined terms for use in derivative transactions. The terms constitute the mechanics of derivative transactions and the payment obligations under them.

This guidance note explains:

• • how the ISDA definitions booklets fit into the ISDA documentation framework;
• • the purpose of ISDA definitions;
• • the key ISDA definitions; and
• • key points to consider when incorporating ISDA definitions into trade documentation.

See ISDA definitions.

ISDA documentation — comparison of the 1992 and 2002 master agreements

This guidance note summarises the differences between the key clauses in the 1992 Master Agreement and the 2002 Master Agreement.

See ISDA documentation — comparison of the 1992 and 2002 master agreements.

Comparing negotiations of the 1992 ISDA master agreement (multicurrency — cross border) and the 2002 ISDA master agreement

The International Swaps and Derivatives Association, Inc (ISDA) publishes two versions of its Master Agreement, which sets out the terms and conditions for over-the-counter (OTC) derivatives transactions. They are:

• • the ISDA Master Agreement (multicurrency — cross border) (the 1992 Master Agreement); and
• • the ISDA 2002 Master Agreement (the 2002 Master Agreement).

This guidance note summarises the key changes brought about in the 2002 Master Agreement and highlights negotiation points for the 2002 Master Agreement as compared to the 1992 Master Agreement.

See Comparing negotiations of the 1992 ISDA master agreement (Multicurrency — cross border) and the 2002 ISDA master agreement.

What is an ISDA protocol?

Protocols are a means of amending ISDA's standard form documents in a quick and practical way. The amendments suggested by ISDA in the protocols can be incorporated into parties' existing documents by those parties agreeing, or “adhering”, to that protocol.

This guidance note describes how and why one would adhere to a protocol and lists the protocols currently open for adherence.

See What is an ISDA protocol.