The following Banking & Finance practice note Produced in partnership with King & Wood Mallesons provides comprehensive and up to date legal information covering:
The International Swaps and Derivatives Association, Inc. (ISDA) publishes two versions of its commonly used 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 Practice Note summarises the key changes brought about in the 2002 Master Agreement and highlights issues to consider when negotiating a 2002 Master Agreement as compared to the 1992 Master Agreement.
Perhaps the most significant change to the Master Agreement relates to the manner in which payments are calculated on an early termination.
The inclusion of 'Close-out Amount' in the 2002 Master Agreement has eliminated the need for two of the key elections in the 1992 Master Agreement: the choices between 'Market Quotation' and 'Loss' and between the 'First Method' and the 'Second Method as methods of calculating what is due by the parties on an early termination.
The advent of the Close-out Amount concept can be described as a compromise between Market Quotation and Loss. It also in substance imposes the Second Method on parties, though the term is no longer used.
Under the 1992 Master Agreement, Market Quotation provides an objective measure of calculating the early termination amount through its
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