17 Oct Learn ISDA Documentation Negotiation to Improve OTC Derivatives Offering

By Dr. Nick Skrekas – International Lawyer, Financial Analyst, EIMF Expert

Senior executives, lawyers and compliance officers on the Forex industry in Cyprus are challenged in negotiating and documenting International Swaps and Derivatives Association (ISDA) Master Agreements to be able to offer more competitive and complex Over The Counter (OTC) derivatives to their client base. That is why the European Institute of Management and Finance is offering a training solution in Cyprus to teach ISDA Master Agreement negotiation and documentation, to keep forex industry staff and lawyers on the cutting edge.

Swaps and derivatives have become more and more complex and have come under closer regulatory scrutiny as their notional values exceeds even the combined world GDP. As the range of users and applications of swaps and derivatives increase, so the legal and documentation problems become more difficult and require ever-more sophisticated techniques.

These ISDA Master Agreement documents have become the de facto global standard for the global OTC derivatives trade with a notional value of above USD700 Trillion. It is estimated that 90% for all OTC derivatives are documented by the ISDA Master Agreement framework, so it vital to master this documentation. Products that are always traded OTC are swaps, forward rate agreements, forward contracts and credit derivatives.

Tailor-made derivatives are offered by international investment banks to traders. They make markets in these derivatives for clients such as hedge funds, commercial banks, and forex trading establishments, as well as larger retail investors.

Learning to negotiate and document ISDA Agreements is an important skill for the Cypriot Forex industry. ISDA documentation has been around for three decades, and although reviewed in 2002, it is the most widely used standard legal and financial documentation in the world.

An ISDA Master Agreement is itself a standard, but it is accompanied by a customized Schedule and sometimes a Credit Support Agreement, both of which are signed by the two parties to a given transaction. Although it is often viewed as a tool for banks and financial institutions, the Master Agreement is widely used by a wide variety of counterparties.

The master agreement is quite lengthy, and the negotiation process can be burdensome, but once a master agreement is signed, the documentation of future transactions between parties is reduced to a brief confirmation of the material terms of the transaction.

The master agreement also aids in reducing disputes by providing extensive resources defining its terms and explaining the intent of the contract, thereby preventing disputes from beginning as well as providing a neutral resource to interpret standard contractual terms. Finally, the master agreement greatly aids in risk and credit management for the parties.

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Dr. Nick Skrekas will be teaching a two-day seminar on “ISDA Master Agreement Negotiation and Documentation” on Nov 6 and 7 in Limassol.